Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Imprisonment of a Member

Mr. Speaker: I have received a letter from a magistrate from the petty sessional division of South Sefton informing me that Mr. Terry Fields, the hon. Member for Liverpool, Broadgreen, has been sentenced to a period of imprisonment of 60 days. I shall cause the text of this letter to be published in the Votes and Proceedings and in the Official Report.

Following is the letter:

Dear Mr. Speaker,
I must advise you that Mr. Terence Fields, Member of Parliament for Liverpool, Broadgreen, appeared before this Court yesterday in relation to non-payment of the community charge for the period ending 31st March, 1991.
The Court found that he had wilfully refused to pay the outstanding sum and as a consequence he was committed to prison for sixty days, the sentence to commence forthwith.
This information is provided in accordance with the requirement imposed by Home Office Circular 103/1982.

Yours sincerely,

G. W. Budd

Justice of the Peace

South Sefton P. S. D.

Oral Answers to Questions — ENERGY

Alternative Energy Sources

Mr. Colvin: To ask the Secretary of State for Energy what is his present target for the percentage of electricity to be generated from alternative energy sources; and if he will make a statement.

The Parliamentary Under-Secretary of State for Energy (Mr. Colin Moynihan): The Government are working towards a figure of 1,000 MW of new renewable electricity generating capacity by the year 2000.

Mr. Colvin: Will my hon. Friend confirm that the Government are obviously doing their stuff in that regard, because, through expenditure on research and development and through the non-fossil fuel obligation. the Government and the Department of Energy are doing more than any other Government to help renewable energy? However, should not that be part of an overall strategy for energy encompassing all sources of energy? Is not that particularly important with the proposed privatisation of British Coal and the need for manufacturers in the industry to plan their R and D and commercial developments so that they can capitalise on the opportunities that will be offered in the future?

Mr. Moynihan: I am grateful for my hon. Friend's contribution and I agree with him completely. More than £180 million has been invested to date in the R and D programme with a record budget allocation of about £24 million for 1991–92. Through that sum, 300 projects are currently supported under the Department's R and D programme.

Mr. Alton: Does the Minister agree that it remains the Government's firm conviction that one of the best


non-renewable schemes would be the construction of the Mersey barrage? Will the feasibility study continue to be financed?

Mr. Moynihan: I confirm the point that the hon. Gentleman has just made. With regard to the Mersey barrage, the Government are supporting, on a 50–50 basis, a third phase of feasibility studies and are contributing £1·5 million.

Dr. Michael Clark: Is my hon. Friend aware that members of the Select Committee on Energy recently visited Scandinavia to look at alternative energy sources such as power from wind, from burning refuse and from the use of waste hot water? Is he aware of the fact that despite this Government having devoted more money to encouraging alternative energy than any previous Government, it still appears that we are behind some of our continental neighbours? Is he satisfied that the Department of Energy is doing all that it can to sponsor research and to encourage the creation of commercial alternative energy sources from those developments?

Mr. Moynihan: I can confirm that and not least through the non-fossil fuel obligation which permitted the creation of a market for exactly the type of projects mentioned by my hon. Friend. When my hon. Friend was travelling with his colleagues, I hope that he emphasised that the United Kingdom's wind energy R and D programme is second to none and is creating enviable expertise and a sound basis for exactly what my hon. Friend wants—the commercial exploitation of wind.

Mr. Redmond: Will the Minister agree to set up a full inquiry into energy needs, paying particular attention to the demise of the British coal industry, because British coal will fall into the category of alternative energy sources? Does he agree that something needs to be done to ensure that future needs are met from within this country and not from abroad?

Mr. Moynihan: I draw the hon. Gentleman's attention to the question, which concentrates on alternative energy sources. He asked whether there would be an inquiry and then deviated to coal. However, I assure him that, with regard to alternative energy sources, we are setting up a major review to ensure that the environmental benefits of renewables are fully exploited.

Independent Gas Suppliers

Mr. Rost: To ask the Secretary of State for Energy if he is satisfied with progress towards the development of a competitive gas market by independent suppliers.

The Secretary of State for Energy (Mr. John Wakeham): I shall announce shortly the results of my Department's monitoring of gas contracted over the past two years. I am encouraged by the progress made so far, although there is still some way to go to achieve a fully competitive gas market.

Mr. Rost: Is my right hon. Friend aware that the Director General of Gas Supply has expressed the view that there will be no meaningful competition in gas until at least 30 per cent. of the industrial market is offered by the new independent suppliers? Will my right hon. Friend do everything that he can to encourage those efforts?

Mr. Wakeham: The review is into the first two years of the new system and I hope shortly to be able to publish that and to report on it. We want there to be as fully competitive a market as possible. The advice given to us by Ofgas is important in formulating that opinion.

Mr. Hardy: Does the Minister accept that history is likely to find cause for deep regret in the unseemly haste with which British Gas reserves are being exploited? Does he realise that the unseemly haste is emphasised by the fact that that premium fuel is largely being used for steam-raising purposes? The Government will stand charged with gross irresponsibility when a wiser generation is in charge of this country's energy affairs.

Mr. Wakeham: I do not accept that at all. Gas has an important part to play in power generation, not least because of the good environmental effects of using gas.

Mr. Hannam: My right hon. Friend will be aware of the difficulties over the supply of gas to some independent private power project companies. Can he give an update on the latest stage of the negotiations between British Gas and the companies concerned?

Mr. Wakeham: British Gas is soon to introduce a new price schedule for all power generation customers. I hope that the new schedule will help to resolve the current difficulties not only between British Gas, Coryton and Thames Power, but for other operators.

Mr. Doran: The Secretary of State will be aware that one of the main tools in aiding competition onshore is the regulation of the gas transmission system. There is growing concern about the Government's failure to use their powers to regulate the transmission system offshore. That is leading to an inhibition of development of some of our vital gas supplies. Does he have any proposals to use the powers contained in the Petroleum and Submarine Pipelines Act 1975 to encourage development offshore?

Mr. Wakeham: I have no such proposals at present, but we are especially studying the development of some satellite fields. There may be a possibility of improving some of them.

Alternative Energy Sources

Mr. Knox: To ask the Secretary of State for Energy when he proposes to have discussions in the European Council of Ministers about alternative sources of energy.

Mr. Moynihan: Alternative sources of energy will continue to be important and relevant in future Council discussions. The next Energy Council meeting is planned for 29 October.

Mr. Knox: Can my hon. Friend say which specific area of research into alternative sources of energy is likely to be most fruitful? Does the European Community propose to devote additional funds to research in that area?

Mr. Moynihan: Grants are available for projects in a wide range of areas on renewables, not least energy efficiency, renewables across the board, clean coal technology and gas and oil exploration and development. We very much welcome the recent announcement that there will be an inclusion of wave power projects under the


non-nuclear energy sub-programme of the third framework programme in view of that technology's potential contribution to energy supplies in Europe.

Mr. Janner: In recent meetings of the European Council of Ministers on energy matters, have the Government discussed the problem that is afflicting the Government and worrying the Opposition—the payment of those who make the decisions on these matters, such as the chairman of East Midlands Electricity, who has received a 63 per cent. pay increase at a time when industrial workers in the area have been held to 8·9 per cent? Surely that matter has a European dimension. Does any other European country have miseries that are similarly scandalous to those with which we contend here?

Mr. Moynihan: The hon. and learned Gentleman asks whether we have discussed that point at Energy Council meetings and the answer is no.

Mr. Michael Morris: As alternative energy sources are environmentally friendly, when my hon. Friend meets his colleagues in Europe, is not there a strong case for reviewing progress on clean coal technology, which is also an environmentally friendly source of electricity generation?

Mr. Moynihan: I agree with my hon. Friend. That is why the Commission and the Community, through its Thermie programme, have made grants available for projects on clean coal technology.

Mr. Morgan: When the Minister next discusses alternative energy at the European level, will he take the opportunity of separating nuclear energy and the Government's support through the nuclear levy and the non-fossil fuel obligation, which is justifiably due to finish in 1998 given that it is a mature industry that is now more than 30 years old, from the similar protection of the non-fossil fuel levy that is given to alternative energy, which should certainly not be terminated in 1998 as that is an infant industry? Will he confirm that, at some point or other, he will extend the protection of the two-tier price system that he has instituted beyond 1998 for non-fossil, non-nuclear energy?

Mr. Moynihan: I accept the importance of the hon. Gentleman's point. This year, despite the 1998 issue, which the hon. Gentleman raised, many projects for the second tranche of the NFFL obligation have come forward to be contracted and are thus financially viable. As I said, I recognise the importance of the hon. Gentleman's point, which will be discussed in detail by the group that is shortly to meet for the first time to consider the strategy of renewable energy projects.

Energy Saving

Mr. Cohen: To ask the Secretary of State for Energy what grants his Department gives to organisations to undertake energy-saving measures in homes.

The Parliamentary Under-Secretary of State for Energy (Mr. David Heathcoat-Amory): My Department gives grants under the home energy efficiency scheme, which provides insulation measures to low-income households. Some £26 million is available under the scheme this year.

Mr. Cohen: The Minister did not say how much is being spent, so his answer is cold comfort for the many householders on low incomes. Have not the Government punctured energy efficiency efforts in the home by voluntary and public organisations and the electricity and gas companies? Does he agree that there is scope for much more home insulation and for more energy-saving measures and would not it make environmental sense to do that? Are not the Tories too bloody mean to be green?

Mr. Speaker: Order. Those are not unparliamentary words, but they are distasteful and unnecessary in the Chamber.

Mr. Cohen: They are too mean to be green.

Mr. Heathcoat-Amory: I agree with the hon. Gentleman that it makes environmental sense to be more energy efficient. Our home energy efficiency scheme will enable 200,000 houses a year to receive insulation and energy efficiency advice, which is a substantial advance on any other year and on what was done by any previous Government.

Mr. Dickens: Does my hon. Friend agree that we need no lectures from the Opposition on energy efficiency, because the last time there was a Labour Government, they spent £2·4 million on energy efficiency, whereas today, under the Conservative Government, the figure stands at £40 million? Does my hon. Friend agree that we are doing something about energy efficiency, which was always neglected by Labour Governments?

Mr. Heathcoat-Amory: That is a typically sound point from my hon. Friend. I confirm that my Department's expenditure on energy efficiency has increased eightfold since 1979 when the Government took office.

Landfill Gas Projects

Mr. Tredinnick: To ask the Secretary of State for Energy how many landfill gas projects are in operation in the United Kingdom and other EC member states.

Mr. Moynihan: There are 34 landfill gas projects currently in operation in the United Kingdom. The latest approximate figure that I have for other EC member states indicates a total of 150 projects.

Mr. Tredinnick: I am grateful to my hon. Friend, who will be aware of the great interest in my constituency in all projects that support the environment. Can he give us some idea of the savings that can be made in conventional energy by the use of landfill gas projects and can he project what savings he thinks we will have made by the turn of the century?

Mr. Moynihan: The existing 34 schemes save some 160,000 tonnes of coal equivalent a year. In response to my hon. Friend's second point, as well as the existing schemes, nine others are under construction and 25 are proposed. When all 68 schemes are in operation, the energy saving will be equivalent to about 500,000 tonnes of coal equivalent per annum.

Electricity Generation

Mr. Butler: To ask the Secretary of State for Energy how many independent electricity generation projects have been announced since the passage of the Electricity Act 1989.

Mr. Wakeham: Under section 36 of the Electricity Act 1989 I have given consent for four independent power stations to be constructed. They are at Coryton, Deeside, Keadby and Wilton, Cleveland.

Mr. Butler: Is not this excellent news for consumers? Can my right hon. Friend give a guarantee that we shall not return to a monolithic monopoly supply, which would be the case if we followed the advice of Opposition Members?

Mr. Wakeham: I have considerable expectations that we shall not return to such a system. Competition in generation is good for not only consumers but the environment. It should be very much encouraged.

Dr. Kim Howells: Does the Secretary of State agree that the dominance of National Power, PowerGen and Nuclear Electric precludes any real competition in electricity generation? Does he further agree that the monopolistic powers which have been handed to PowerGen and National Power in particular threaten to destroy Europe's most efficient coal industry, as those powers have all but destroyed the coal industry of south Wales and wasted a great national asset?

Mr. Wakeham: I do not accept that for a moment. First, competition in generation will be widespread. Apart from the four projects that I have announced, four other projects were applied for and received planning permission before the 1989 Act came into force. We have been advised about several other projects which, at this stage, are confidential. Secondly, I do not believe that the coal industry will be ruined, as the hon. Gentleman made out, as a result of the privatisation of the electricity generating industry. The industry has a significant and important future in the provision of coal for generation in Britain. If it continues to improve its productivity as it has done in recent years, it will stand to have a larger share of the market.

Sir Trevor Skeet: Will my right hon. Friend give some idea of not merely the number of projects but those which, in his estimation, are likely to materialise? Will he also tell us how many projects out of the total number are gas turbine projects and how many are coal? Are not they all gas turbine?

Mr. Wakeham: With the best will in the world, as the applications have to come to me and I have to consider them and decide whether to give planning approval, it would be unwise for me to speculate about which projects are good runners and which are not.

Electricity Supply

Mr. Flynn: To ask the Secretary of State for Energy what plans he has to meet the chairs of the statutory electricity consumer committees to discuss the regulation of the electricity supply industry.

Mr. Wakeham: This matter falls within the responsibility of the Director General of Electricity Supply, who meets the chairmen of the consumers' committees on a regular basis.

Mr. Flynn: When the meeting with the chairs of the Merseyside and North-Western and the South-Western electricity boards takes place, will they be reminded that the Government knew in advance that the directors' salaries would be doubled and trebled and that the Government deliberately gagged the companies and forbade them to reveal that fact last autumn? Will the Secretary of State take advantage of the fact that today is a day of national penitence to confess the Government's and the Prime Minister's shameful complicity in this orgy of greed which scandalised the whole nation?

Mr. Wakeham: If any penitence is required it is from the hon. Gentleman, who has just made a statement which he knows to be untrue. The statement in the prospectus was the position and that position was set out. What was said at a meeting was subsequently withdrawn by those concerned. The hon. Gentleman should be ashamed of himself.

Mr. John Marshall: Will my right hon. Friend confirm that the privatised industries have had much more effective control of their prices than was ever the case when they were in the public sector? Does he agree that privatisation has led to much higher investment, productivity and revenue to the tax authorities than ever occurred when the industry was in the public sector?

Mr. Wakeham: My hon. Friend makes his point well. He is correct.

Mr. Dobson: Will the Secretary of State end this pretence that he and the rest of the Government were not involved in the massive pay increases for electricity bosses? In particular, will he confirm that the Government paid City advisers Coopers and Lybrand no less than £360,000 for advice on the pay and perks of electricity bosses? That sum is so large that it would almost pay for one of the chairmen. As the taxpayers paid for the advice that the Secretary of State received, will he now publish it so that they can see whether they got value for money?

Mr. Wakeham: In recent times we have had a number of exchanges and a debate on these matters and there is not much more that I want to say. I will just add this: Coopers and Lybrand produced one of several reports on executive pay. Naturally, the companies pressed for increases. The Government decided that salaries should be restrained while the companies were in the public sector. Thereafter it was a matter for the companies.

Mr. Simon Hughes: Will the Secretary of State look again at the regulation of privatised industries, such as the electricity industry? Does he recognise that it is unacceptable for the industries to be able to offer their chairmen and other executives such enormous pay increases when that goes contrary to Government policy? Does he accept that the House of Lords Select Committee, which is about to report, makes it clear that the new structure of the industry adds to the possibility of generation and supply, but goes against energy efficiency? The regulative powers of the new industry are not effective. What will he do about it?

Mr. Wakeham: First, I will not add anything to what I said about directors' pay. I have already expressed my view, as has my right hon. Friend the Prime Minister. I merely add that salary increases do not affect the price to the consumer, because of the regulation. That is important. I disagree with the hon. Gentleman about energy efficiency in the privatised system. Competition in generation is one of the single most important steps that we have taken to improve energy efficiency. The generators now have a direct financial incentive to reduce the costs of producing electricity. As their principal cost is the fuel that they use, they have a powerful reason for wanting to improve efficiency.

Energy Efficiency

Mr. Holt: To ask the Secretary of State for Energy what is the current level of investment in energy efficiency.

Mr. Heathcoat-Amory: It is not possible to separate out a national figure for total investment in energy efficiency because it is often part of wider capital expenditure in industry, transport and the public sector. However, since 1983 the amount of energy used per unit of national output has fallen faster in the United Kingdom than in the majority of other EC countries.

Mr. Holt: However much we try to save energy, we are concerned about its creation in the first place. We on Teesside are getting worried that there is no strategy for the number of power plants that will be sited there, that there are no controls and, more particularly, that there is no concern about the transportation of that electricity by cables once the plants are in operation. Is not it time that the Government gave that some thought instead of just leaving it to the roulette wheel?

Mr. Heathcoat-Amory: My hon. Friend will appreciate that new and modern generating stations can mean new transmission networks. He will also know that any proposals for substantial overhead lines introduced by the National Grid Company must be accompanied by an environmental statement which balances the need for energy with the environmental concerns of my hon. Friend and others.

Mr. Bermingham: Does the Minister agree that any investment in energy conservation, whether by insulation or otherwise, creates employment for people in other industries? Surely now, when the whole of industry is in recession, any Government-led investment of that nature must be welcome?

Mr. Heathcoat-Amory: I agree about the importance of energy efficiency measures, which is why my Department is spending more than £40 million on promoting energy efficiency.

Mr. John Browne: I welcome my hon. Friend's answer. May I ask him whether he has any plans to encourage—[HON. MEMBERS: "Put your hat on."] individuals and corporations to invest in energy-saving devices, such as PL lightbulbs? Their use could be encouraged even at retail level through rebates, which are used in the United States and Canada.[Interruption.]

Mr. Speaker: Order. Perhaps that will encourage the hon. Gentleman not to wear his hat.

Mr. Heathcoat-Amory: I am sorry about my hon. Friend's hat—as a result I have already forgotten part of my hon. Friend's question. There are plenty of incentives to invest in energy efficiency measures, because, by saving fuel and electricity, the customer is also saving money. For those low-income households where such savings may not apply we have a separate scheme which I have already described to the House.

Electricity Supply (Sharing)

Mr. Dykes: To ask the Secretary of State for Energy if he will make a statement on the operation of the EC Energy Council's development of electricity supply sharing arrangements.

Mr. Heathcoat-Amory: I understand that the European Commission expects to bring forward proposals for opening up electricity markets in Europe very soon. I welcome that development and look forward to such discussions with other EC countries in the Energy Council.

Mr. Dykes: I thank my hon. Friend for that answer. Will he confirm that Her Majesty's Government will press that campaign and policy vigorously, bearing in mind that there are rumours of tardiness by other member states as well as some of the officials in the Commission dealing with that policy? Notwithstanding that the single market has not yet begun—[Interruption.]—if I had a hat I could take it off to hear my hon. Friend's answer—does my hon. Friend agree that a single market for electricity supply is vital so that we can sell some of our electricity to the continent?

Mr. Heathcoat-Amory: I agree, but there is resistance in some other member states to the proposals for a freer market in electricity. Their state monopolies are, inevitably, somewhat resistant to competition, but we strongly believe that a true internal market requires a freer market in electricity. We have introduced proposals to that end.

Mr. Douglas: Will the Minister exercise some care in examining the internal market within Britain? Would he care to comment on the progress that has been made on the interconnector between Scotland and England? That would facilitate the use of Scottish energy generated from coal and other means in England.

Mr. Heathcoat-Amory: I cannot comment on specific proposals, because my right hon. Friend the Secretary of State may be required to authorise such developments in due course. It is a sign of the developing market in electricity in the United Kingdom that trade from one part of the United Kingdom to another is an increasing possibility.

Photovoltaic Electricity

Mr. Page: To ask the Secretary of State for Energy what is his estimate of the potential for photovoltaic electricity generation in the United Kingdom.

Mr. Moynihan: I have recently reviewed the scope for photovoltaic electricity generation in the United Kingdom and concluded that there is a significant opportunity for photovoltaic power to contribute to United Kingdom


energy needs in certain applications. For that reason I recently announced a new research programme into the technology.

Mr. Page: I thank my hon. Friend for that reply. It is obvious that that form of energy production has considerable usage not only for stand-alone purposes, but as an environmentally clean form of energy. So that we can get a handle on the size of the power that could be generated, can my hon. Friend tell the House and the nation what volumes of energy in gigawatts could be produced by that form of electricity generation into the early years of the next century?

Mr. Moynihan: I assume that my hon. Friend is including consumer products—it is estimated that 170 GW hours could be produced by the year 2025.

Nuclear Power Stations

Mr. Alan W. Williams: To ask the Secretary of State for Energy if he will make a further statement on the decommissioning of nuclear power stations.

Mr. Wakeham: Decommissioning is a matter for nuclear power station operators to consider within the guidelines on safety and environmental protection set by the Health and Safety Executive's nuclear installations inspectorate and Her Majesty's inspectorate of pollution.

Mr. Williams: In its proposals for "deferred dry store", is it right that Nuclear Electric should consider postponing the decommissioning of nuclear power stations by 30 years, which would leave the problem to future generations to tackle? Is not the idea of simply "mounding over" spent nuclear power stations to create massive nuclear tombs environmentally irresponsible? Does the Minister agree that Nuclear Electric's proposals amount to an admission of defeat, because it simply does not know how to dismantle nuclear power stations and is terrified of the cost?

Mr. Wakeham: I do not accept that. When considering decommissioning it is important to ensure the continued safety of the workers, the public and the environment. That will be ensured by continued control by the regulators. Nuclear Electric's proposals demonstrate its commitment to seeking the most cost-effective strategy, which takes account of safety and environmental concerns.

Mr. Ian Bruce: Will my right hon. Friend reflect that, when those nuclear power stations, particularly the Magnox power stations, were first built, it was intended—it was Government policy—that the sites should be mounded in that way? Does he agree that to do anything other than that would be a total waste of what will probably become taxpayers' rather than private operators' money?

Mr. Wakeham: I always listen to my hon. Friend with considerable care when he is talking about such matters. However, the nuclear installations inspectorate is considering those proposals and it would not be right for me to comment further.

Mr. Barron: When the Government privatised the electricity supply industry they agreed that a levy of 10·6 per cent. would be added to people's electricity bills to pay

for the difference between the cost of expensive nuclear power and fossil fuel. That levy has now increased to 11 per cent. Given that, at that stage, it was meant to cover the total decommissioning of power stations over 100 years and that the nuclear industry now talks about decommissioning over 130 years, why has there been no decrease in electricity bills?

Mr. Wakeham: The levy was set for the first five years on a declining basis. It has gone up from 10·6 to 11 per cent. because of estimated differences in the take off. However, I confirm that there is still a trend downwards over the eight years.

British Coal (Output)

Mr. John Marshall: To ask the Secretary of State for Energy if he will make a statement about the change in output per man shift in British Coal since 1984.

Mr. Wakeham: In 1983–84, British Coal's putput per manshift was 2·43 tonnes. Figures just received for the year to 29 June 1991 indicate that this has more than doubled to 4·87 tonnes.

Mr. Marshall: Does my hon. Friend agree that those magnificent figures underline the great benefits to the country from winning the coal strike in 1984–85? Does he also agree that they underline the potential for the speedy privatisation of that industry?

Mr. Wakeham: I agree with my hon. Friend. the improvements in productivity have been remarkable, and they must continue if the industry is to have a long-term, competitive base. I remind my hon. Friend that since 1979 the Government have approved more than £7 billion of new investments and grant aid of about £17 billion, including provision of more than £6 billion in deficiency grants under last year's Coal Industry Act. Improvements in productivity, financial support and long-term contracts with the generators are all part of the improvements to the coal industry.

Mr. Eadie: Does the right hon. Gentleman agree that those output figures in a publicly controlled industry far surpass the productivity rate in, for example, Germany, which has a privatised coal industry? Although the right hon. Gentleman said that he had high hopes that the coal industry would win contracts from the power companies, is he aware that a statement was made this weekend to the effect that the power companies are reluctant to give long-term contracts? Indeed, they are still hell bent on importing 50 per cent. of their coal.

Mr. Wakeham: I hope that the hon. Gentleman is not falling into the same trap as some of his colleagues who, whenever a discouraging statement is made by the electricity generators in the run up to a renegotiation, treat it as the gospel truth according to St. Neil. The renegotiation for the coal industry is extremely important and the generators will take into account all the factors to which I have referred many times from the Dispatch Box. They include security of supply and questions of exchange rate risks. It is not a question of contract based purely on price and British Coal has a great deal to offer in those contracts.

Electricity Disconnections

Mr. Carrington: To ask the Secretary of State for Energy what was the level of disconnection for debt of electricity customers in (a) 1976, (b) 1986 and (c) 1990.

Mr. Heathcoat-Amory: In the year ending 31 March 1976, disconnections for domestic electricity debt in England and Wales totalled 125,000. In the year to 31 March 1986, they had dropped to 102,000. In the year to 31 March 1991, they had fallen to 51,637—the lowest recorded level.

Mr. Carrington: Does my hon. Friend agree that that significant drop in disconnections demonstrates the success of the privatised electricity companies in looking after customers who can, temporarily, least afford to pay their bills? Does my hon. Friend agree that the privatised electricity companies should be congratulated on their efforts to assist people who get into financial trouble? Will he encourage those companies to continue that policy in future?

Mr. Heathcoat-Amory: Yes, Sir. The fact remains that, under Labour, more than twice as many people were having their supplies cut off because of electricity debts. That shows that the privatisation programme that we have pushed through is good for the customer, particularly low-income households that would otherwise be disconnected. I can confirm that, under the codes of practice agreed between the newly privatised companies and the regulator, the figures should drop even further.

Oral Answers to Questions — DUCHY OF LANCASTER

Duchy Visit

Mr. Hayward: To ask the Chancellor of the Duchy of Lancaster when he next intends to visit the county palatine.

The Chancellor of the Duchy of Lancaster (Mr. Chris Patten): I am sorry to be the bearer of bad news, but I have no plans to visit the county palatine in the near future.

Mr. Hayward: When my right hon. Friend next goes to the county palatine, will he visit Blackburn? When he does so, will he go via Newham and Marlow, where the Conservatives recently took seats off the Labour party, Clwyd where last week the Labour party was denied control of the county council, and so arrive at Blackburn, where the Conservatives also recently took a seat off the Labour party? Are not those results a clear sign that the public at large are seeing through Labour party proposals, particularly on issues such as defence—today, the Government announced an invitation to tender for a fourth Trident nuclear submarine.

Mr. Patten: I am sure that one reason that we have done so well in recent local government by-elections is because the public do not trust the Labour party on either the economy or defence. I am equally sure that people in Barrow will have been delighted by today's announcement that we are going ahead with building the fourth Trident which is essential to the credibility of our deterrent. The public will know that the Labour party is opposed to the building of that Trident vessel and will be interested to

know what Labour's overall defence policy is. I am sure that the public can look forward to an intensely interesting discussion at the Labour party conference.

Mr. Grocott: Can the Minister confirm that, in view of his disastrous record since taking up his present job, he must be pretty nervous about visiting the north-west or anywhere else, when part of the reason for his visit is to manage a Tory party by-election campaign? May I ask him the following question termed in his own colourful language: which of the two results in the north-west left him feeling the most gobsmacked—the Tory party's performance in Ribble Valley, where it lost a safe Tory seat, or its performance in the Walton division of Liverpool, where its candidate lost his deposit?

Mr. Patten: I think that the television coverage of events in Liverpool reminded people throughout the country that, as the Labour party could not run Liverpool, it certainly would not be able to run Britain. The result in Walton reminded us that extremism in the Labour party, which we were told years ago had been wiped out, is still rife. I look forward to securing the same 10·9 per cent. swing in our favour as we achieved in Blackburn the other day.

Mr. Simon Coombs: To ask the Chancellor of the Duchy of Lancaster when he next intends to visit the Duchy on official business.

Mr. Chris Patten: I refer my hon. Friend to the answer that I gave some moments ago.

Mr. Coombs: May I urge my right hon. Friend to consider an early visit to the Duchy to tell his tenants about the disastrous consequences of a national minimum wage policy? Is it not extraordinary that there was no mention whatever of that policy by the Leader of the Opposition on his recent visit to Blackpool to the Transport and General Workers Union conference?

Mr. Patten: As I understand it, before the Leader of the Opposition went to Blackpool his office was telling people that in his speech he would make strong references to a national minimum wage because he was so proud of Labour's policy on that. In the event he kept mum, and one can only draw one's own conclusions.

Parliamentary Questions

Mr. Winnick: To ask the Chancellor of the Duchy of Lancaster how many parliamentary questions he has answered since he last answered questions orally in the House.

Mr. Chris Patten: Five, Sir.

Mr. Winnick: That must have kept the right hon. Gentleman pretty busy. Although the Tory vote in Walton was the lowest Tory percentage vote this century—a new record—is it not of some consolation to the right hon. Gentleman that at least the Tory candidate in that by-election got a few more votes than Lord Sutch?

Mr. Patten: It was a great comfort to us that all Conservative Members who were asked supported the Conservative candidate in Walton. I understand that that was not the case for the Opposition.

Oral Answers to Questions — PUBLIC ACCOUNTS COMMISSION

National Audit Office

Mr. Dickens: To ask the Chairman of the Public Accounts Commission what representations he has received regarding the sufficiency of the National Audit Office's funding to ensure adequate coverage of all Government Departments.

Sir Peter Hordern (on behalf of the Public Accounts Commission): In considering the adequacy of funding for the National Audit office, the Public Accounts Commission takes into account the proposals of the Comptroller and Auditor General as set out in the National Audit Office corporate plan, together with the views of the Public Accounts Committee and the Treasury. The Commission has received no other representations.

Mr. Dickens: I am obliged to my hon. Friend for that answer. Will he confirm that the quality of audits is beyond dispute and that they are absolutely first class? Nowadays shoppers and everybody else seek value for money. Is my hon. Friend satisfied that sufficient value-for-money audits take place? Are people getting value for money from Government Departments, and is my hon. Friend satisfied that they have sufficient audits?

Sir Peter Hordern: I agree with my hon. Friend that value for money from Government Departments is at least as important for Government Departments as it is for the consumer. I am happy to tell him that there were 43 value-for-money exercises last year and 47 this year, and that there will be 50 next year and each year thereafter. The House can be grateful to the Comptroller and Auditor General, his staff and other firms for the time and experience that they devote to value-for-money exercises in Government Departments.

Mr. Franks: Will my right hon. Friend inquire of the Audit Commission whether it has recently investigated the activities of a well-known firm of local bookmakers in Cumbria called Barrow city council? This organization—

Mr. Speaker: Order. The hon. Gentleman must ask questions relating to the Public Accounts Commission.

Mr. Franks: I am asking my hon. Friend to inquire of the Audit Commission about this firm of bookmakers which has managed—

Mr. Speaker: Order. Questions must relate to the Public Accounts Commission.

Mr. Franks: Surely the Public Accounts Commission has an interest in this firm of bookmakers which over the past three years has managed to blow £4·5 million, including recently £1·2 million on the Bank of Credit and Commerce International. Perhaps that firm of bookmakers did not realise that a horse which was doped in the United States should not be running in local races in Cumbria.

Sir Peter Horden: I have to tell my hon. Friend, with some disappointment, that the Public Accounts Commission has no authority over the Audit Commission, which looks after local government. We are responsible for

the National Audit Office. Much as I think that the Public Accounts Commission would like to look at a firm of bookmakers, that does not come within its ambit.

Mr. Butler: Does the National Audit Office have enough money to look into the premature closure of the nuclear structure facility at Daresbury, which seems to involve a scandalous waste of taxpayers' money?

Sir Peter Horden: I have not heard about this one, but I shall draw the attention of the Comptroller and Audit General to it, and write to my hon. Friend.

Oral Answers to Questions — DUCHY OF LANCASTER

Duchy Business

Mr. Cohen: To ask the Chancellor of the Duchy of Lancaster what proportion of his time he spent on official Duchy business in the last month.

The Chancellor of the Duchy of Lancaster (Mr. Chris Patten): I spend up to a quarter of my time carrying out my duties as Chancellor of the Duchy of Lancaster. Thanks to the hon. Gentleman getting in with his question, the percentage has increased slightly.

Mr. Cohen: As part of those duties, the Chancellor must be getting lots of representations about saving the regiment in his area. What about the regiments that run our hospitals and schools, work on our buses and trains and manufacture our goods and products? Has not the Conservative party shown that it is incapable of saving those regiments? Even without the right hon. Member for Finchley (Mrs. Thatcher) at the helm, are not the Conservatives still a monstrous regiment?

Mr. Patten: I hope that that is the end of regimental metaphors for the time being. I have had none of the representations that the hon. Gentleman suggests I have, although I have had some representations that the country should be saved from Labour's defence policy, whatever that may be.

Oral Answers to Questions — HOUSE OF COMMONS

Telephone Directory

Dr. Goodson-Wickes: To ask the Lord President of the Council when the design and lay-out of the Palace of Westminster telephone directory was last revised for the benefit of its users.

The Lord President of the Council and Leader of the House of Commons (Mr. John MacGregor): The present design and layout of the Palace of Westminster telephone directory have not changed substantially for a number of years, but the format and content are reviewed and modified on each occasion it is published.

Dr. Goodson-Wickes: I hope that my right hon. Friend does not feel that this is a trivial matter, because I know that I am not alone in finding the document physically unwieldy and appallingly indexed and laid out, to the extent that many colleagues telephone the operator rather than wade through it. Is this not a ridiculous state of affairs? Will my right hon. Friend initiate a redesign of the document, preferably by a user?

Mr. MacGregor: My hon. Friend may have ideas of his own and I shall ask the Serjeant at Arms to consult him about the improvements that he may wish to suggest for future editions.

Mr. Dykes: On the design and layout of the European destination envelopes, will my right hon. Friend confirm that they are commencing today, that supplies are available and that they are properly designed?

Mr. Speaker: Order. The question is about telephone directories.

Palace of Westminster (Access)

Mr. Simon Coombs: To ask the Lord President of the Council what plans he has to extend public access to the Palace during recesses.

Mr. MacGregor: I have no plans to extend the present arrangements that enable parties of visitors sponsored by Members of both Houses to tour the Line of Route during recesses.

Mr. Coombs: Will my right hon. Friend give some consideration to the fact that the Palace of Westminster is a most attractive proposition for all tourists who come to London during the summer? Will he consider the implications of making access to the Palace during the summer recess available on a commercial basis so that some of the costs of the upkeep of the Palace can be defrayed by the substantial income that would be received?

Mr. MacGregor: My hon. Friend will know that there are security implications about general access. Any decision to reopen the Line of Route to the general public, other than under the arrangements that we have at present, would have security implications that would need to be considered by the relevant Committees of both Houses before being put to the three authorities responsible for Westminster Hall. Succesive Administrations have accepted that the costs of upkeep of the Palace should be a charge on public funds. I understand the Accommodation and Administration Sub-Committee, when it last looked at the proposal that my hon. Friend made, rejected it. However, I accept that it could look at the suggestion again.

Mr. Corbyn: When the recess comes, will the Leader of the House spend some time finding out why so little has been done to improve access to the building for those with disabilities, particularly those in wheelchairs or using crutches and those with sight difficulities? Will he also look at the lack of Braille editions of the guides and other literature available for visitors? Does he accept that, until we can give people with disabilities full access to this building, we cannot say this is truly a public place, as it ought to be?

Mr. MacGregor: A number of improvements have recently been agreed by the Accommodation and Administration Sub-Committee. It is proposed that a comprehensive study should be carried out to identify other practicable and acceptable proposals for further access for the disabled.

Sir John Stokes: Before my right hon. Friend considers making further proposals for access to the Palace of

Westminster, will he find time to consider the standard of dress of visitors who are now coming in here? Recently some of them have appeared to be practically naked.

Mr. MacGregor: I assume that my hon. Friend is not referring to hon. Members in this place. I do not know what proposals he has in mind. If there are any particular matters that he wishes to raise, I shall be happy to consider them.

Natural Heritage (Scotland) Bill

Mr. Dalyell: To ask the Lord President of the Council how many hours were spent on each of Second Reading, Committee stage, Third Reading, and consideration of Lords amendments of the Natural Heritage (Scotland) Bill.

Mr. MacGregor: The time spent on each stage of the House of Commons consideration of the Natural Heritage (Scotland) Bill [Lords] was as follows: Second Reading, six hours and three minutes; Standing Committee, 19 hours and 43 minutes; Report, four hours and 50 minutes; Third Reading, one hour and 23 minutes, and consideration of a Lords amendment to a Commons amendment and Lords amendments in lieu of Commons amendments, four hours and six minutes.

Mr. Dalyell: And what squandering of parliamentary time it proved to be after a group of self-interested peers had inserted an amendment into the Bill that changed its very nature at the 1lth hour and 59th minute. Does not the Leader of the House feel just a tinge of shame that he could not even get the hon. Member for Dumfries (Sir H. Monro) to vote for it and that Sir Fred Holliday, who was appointed by the Government during April of this year—a man whom the right hon. Gentleman must have known when he was Minister of Agriculture, Fisheries and Food and Secretary of State for Education and Science—resigned on a point of principle? What has happened is appalling.

Mr. MacGregor: I do not accept that the Lords amendment changed the very nature of the Bill as it was introduced on Second Reading.

Air Conditioning

Mr. Butler: To ask the Lord President of the Council if he has any plans to improve the air conditioning system of the House.

Mr. MacGregor: I have no plans to make any immediate improvements.

Mr. Butler: I have to report to my right hon. Friend that there is great stuffiness in Commons Court, especially for the new boys who do not have a window. I have had to buy an auxiliary unit. Can my right hon. Friend offer any comfort?

Mr. MacGregor: I am aware of the problem that arose recently for my hon. Friend and for other hon. Members on both sides of the House in what is known as the Tea Room block, where my hon. Friend's office lies. The compressor is in a hermetically sealed unit and so there are access problems. A new compressor was installed last year and it failed in early June of this year. The specialist firm


failed to meet the timetable for manufacturing a replacement unit. I am glad to say that the equipment is now working again.

Premium Rate Telephone Services

Mr. Flynn: To ask the Lord President of the Council if he will make it his policy to bar House of Commons telephones from connections to premium rate services.

Mr. MacGregor: Access to premium rate telephone services will be barred for the duration of the summer recess, and the issue will be considered again by the Accommodation and Administration Sub-Committee when the House returns.

Mr. Flynn: Does the Leader of the House think that much will be achieved by barring the services during the summer recess? Will he give us a guarantee that like most Government Departments that already have a bar on these services, the bar will continue when we return? Surely it is right that the House shows its disapproval of the majority of the services, which are extremely damaging and run by soft pornographers.

Mr. MacGregor: In view of the hon. Gentleman's request, I thought that he would welcome the fact that the chairman of the Accommodation and Administration Sub-Committee has decided to bar access to the services during the summer recess. It is a matter for the Committee to reconsider and then to take a full decision.

Victoria Tower

Mr. Harry Greenway: To ask the Lord President of the Council when he expects the cleaning of Victoria Tower to be completed; at what cost; and if he will make a statement.

Mr. MacGregor: In 1994, at an estimated cost of £7·5 million.

Mr. Greenway: Will my right hon. Friend confirm that some years ago we could have had Victoria Tower cleaned for £3 million? It is sad that the cleaning will now cost £7·5 million. Will he ensure that when it is cleaned, the Union Jack that flies proudly on top of the Tower is always a clean one. Sometimes we have a dirty flag.

Mr. MacGregor: On my hon. Friend's second point, I shall ensure that his request is noted. On the first point, of course the cost has increased, partly because the scope of the work has changed and partly because of noise problems. However, it is a major undertaking: for example, the scaffolding weighs more than 700 tonnes, the bars measure about 70 miles and the piling had to go down 21 m. It is a major undertaking and by far the largest phase of the project of cleaning the Palace.

Mr. Grocott: Do not the towers of this building represent some of the last few unused wasted spaces? I refer in particular to the tower above the Central Lobby which would be an ideal location for a central control room for television cameras. Now that cameras are an integral part of our democracy, should not the location for television crews and for the House's own facilities be somewhere central within the Palace of Westminster?

Mr. MacGregor: That question goes wider than the cleaning of the Victoria Tower, but, as the hon. Gentleman knows, the issue was discussed by a Committee on which we both served and it will come before the Services Committee this week. Speed and cost must be considered in relation to whether that part of the Palace should be used for the central control room for the broadcasting of the House, as he knows, but I agree that it is right to make full use of every available space in the Palace.

Mr. Jopling: Does the Leader of the House realise that the restoration of Victoria Tower will mark the completion of the fundamental and far-reaching changes instigated by the late Sir Robin Cooke, many of which have been hugely to the advantage of hon. Members, of those who work here and those who merely pass by? Does he accept that the changes are comparable to the work done by Harcourt which has been commemorated by part of the Palace being named after him? Does not the Leader of the House think that it would be appropriate for the work of Sir Robin Cooke to be given similar recognition?

Mr. MacGregor: I agree that the outside and the inside of the Palace have been vastly improved and I think that the improvements are widely welcomed by all hon. Members and by those outside. I also agree that the work of the late Sir Robin Cooke deserves the highest praise for the improvements that it has achieved and which we all enjoy. I shall bear in mind the point that my right hon. Friend made in the last part of his question.

Points of Order

Mr. Richard Holt: On a point of order, Mr. Speaker. I am sure that it has been brought to your attention that on Friday the debate ended in considerable acrimony because of the actions of the Opposition Front-Bench spokesman, who broke with the tradition of the House and refused to allow the Minister any time to reply to the debate. When Back Benchers had finished speaking, there were 20 minutes left and it had been agreed that each Front-Bench speaker would have 10 minutes. The Opposition Front-Bench spokesman deliberately spoke out his time because he did not want the Minister to answer the debate. If that happens, law and order in the Chamber will break down because anyone who succeeded in catching your eye, Mr. Speaker, could go on speaking ad infinitum and no one else would get a chance to speak. It is very important that we do not allow Front-Bench spokesmen of any party to behave in such a way at the end of a very important debate.

Mr. Speaker: Order. I read in Hansard what the Deputy Speaker who was in the Chair at the time had to say. I understand that it was alleged that agreements made through the usual channels had not been kept. That is what Hansard reports, but certainly I think that the Government Front Bench should have an opportunity to reply to a debate.

Mr. Tam Dalyell: On a point of order, Mr. Speaker. At the risk of incurring your intense disapproval, may I ask you, as inscrutably as I can, on what authority in "Erskine May" you made a judgment, however much you may have deplored doing so, on an hon. Member wanting to raise an important subject—in this case, the threat of military action against Iraq—under Standing Order No. 20? I would like to argue very succinctly that—

Mr. Speaker: Order. I do not think that I can allow the hon. Member to do that, because then he will raise my— [HON. MEMBERS: "Dander"?] If the hon. Member had been available during the lunch hour to discuss the matter with me, I could have explained. I think that the whole House agrees that the Standing Order No. 20 procedure gives Back Benchers a prize opportunity to raise matters of great importance in prime time. Some time ago, I had to rule that I could not hear applications that did not even reach first base. It would not be right on any day for right hon. or hon. Members to take three minutes in prime time to discuss matters that they think are particularly important. If the hon. Gentleman had come to see me at lunch time, I would have explained to him why I could not hear his Standing Order No. 20 application today—and I am not going to hear it now.

Mr. Dalyell: Further to that point of order, Mr. Speaker. As to the question of certain debates, as I understand it, the problem is one of urgency. It is not just a question of wanting three minutes; some of us desperately feel that, given the situation in which our country may be involved—

Mr. Speaker: Order. I do not think that it would be right for me to have an argument with the hon. Member,

in the Chamber. Perhaps he will reflect that the United Nations deadline runs out on 25 July, and that gives us a little time.

Mr. Donald Thompson: Further to that point of order, Mr. Speaker. Are you not required by the House not to give reasons for your rulings?

Mr. Speaker: Sure.

Mr. Peter Shore: On a point of order, Mr. Speaker, on your selection of amendments to the Finance Bill. You will be aware that a large number of hon. Members on both sides of the House want to discuss the appalling decline of the British Merchant Navy, and have put their names to two new clauses that would have made such a discussion possible. I see that yours is a provisional list of amendments, Mr. Speaker, so am I right in assuming that there could be a revised and final list that might enable discussion on the new clauses to which I referred? Failing that—which I hope will not be the case—will you inform the House whether you selected any amendment on which a realistic debate about the plight of the British shipping industry could be mounted?

Mr. Speaker: The hon. Member for Calder Valley (Mr. Thompson) has just explained to the House that I should not give reasons for my rulings. In fact, it would be very dangerous to do so. I think that the right hon. Member knows why, in that particular case, it was not possible for me to select the two new clauses to which he referred. I will not go beyond that. However, the issue could be raised on Third Reading.

Sir Ian Gilmour: Further to that point of order, Mr. Speaker. You will be aware that that subject was not debated in Committee. A vast number of hon. Members want it to be debated, and it will not be understood outside the House if it is not. I refer to a letter that you, Mr. Speaker, sent to an hon. Member—which I believe is not confidential—in which you stated that because there was so much pressure upon you, and such urgent concern was felt about the matter, you felt that such a debate would be counter-productive. I venture to suggest that in reaching that decision, Mr. Speaker, you misdirected yourself. It may be that some of the letters that were sent to you were not properly phrased, and no doubt that is the fault of the hon. Members concerned. However, surely that should not have affected your judgment.

Mr. Speaker: As the right hon. Gentleman mentioned my letter, and said that my decision might not be understood outside the House, perhaps I should explain that I received a great many letters on the subject. Some of them included a copy letter that stated, "Please put this in your own words." When the Speaker receives letters of that kind, he is led to believe that there is some kind of organised lobbying, trying to persuade him to take certain action. Against that background, I could not possibly have selected the new clauses in question.

Mr. Win Griffiths: On a point of order, Mr. Speaker. May I reply to the hon. Member for Langbaurgh (Mr. Holt)? He did not tell me that he intended to raise the matter here this afternoon, but I suspected that someone would.
I want to make it absolutely clear that, when I rose to speak at 2·7 pm on Friday, I was still under the impression


that the original agreement had been that the winding-up speeches would begin at 1·45 pm. I thought that the three consecutive Conservative speakers had taken time set aside for their own Minister. I said that I was going to finish when I was first interrupted by the Minister, but, following that, some seven minutes were taken up by Conservative Members raising points of order. If they had not been, I should have been able to finish my speech and to allow the Minister time to speak.

Mr. Speaker: It sounds as if there was a breakdown in communications between the usual channels. I think that we should leave it at that.

Mr. Bernie Grant: On a point of order, Mr. Speaker. It has been suggested that I use the emergency written question procedure to deal with an urgent matter that has arisen in my constituency.
Over the past few days, new evidence has come to light that shows that Winston Silcott, of the Tottenham Three, is innocent, and that confessions were forged by police officers. Is there any means, apart from the written question procedure, of dragging the Home Secretary to the House, given the urgency of the matter?

Mr. Speaker: The hon. Gentleman and I had a conversation about that too, and he knows what advice I gave him.

Mr. Greville Janner: On a point of order, Mr. Speaker. Have you received any request for a full debate—or, at the very least, a ministerial statement—on the growing scandal of BCCI? Should not the Government be required to make a statement, and should there not be a procedure to allow that, given that it is clear that the relationship between the Bank of England—

Mr. Speaker: Order. This is taking time out of the debate on the Finance Bill—which, indeed, will give hon. Members an opportunity to discuss the matter that the hon. and learned Gentleman has raised, provided that they do not raise too many points of order. It can be discussed on new clauses 3, 35 and 37.

Mr. Brian Wilson: Further to that point of order, Mr. Speaker. I welcome what you have said. During Prime Minister's Question Time on Thursday, however, the Prime Minister stated—no doubt inadvertently—that the Bank of England had acted as soon as it was given notice that there was evidence of fraud. We now know—

Mr. Speaker: Order. I cannot answer for what the Prime Minister said. This is not a matter for me. I think that it should be raised on new clause 3 of the Finance Bill. No doubt those responsible—that is, the Government—may be able to give an answer, but I cannot.

Mr. Jeremy Corbyn: On a point of order, Mr. Speaker. In view of the statement that was made over the weekend about the new evidence surrounding Winston Silcott's conviction, do you not accept—

Mr. Speaker: Order. I had a conversation about that with the hon. Member for Tottenham (Mr. Grant), and I explained the correct procedure then. I give procedural advice in private, and I cannot hear points of order on the subject now.

Mr. Gerald Bermingham: On a point of order, Mr. Speaker. This afternoon, the Chancellor of the Duchy of Lancaster confirmed that he had answered only six questions. Up to 25 per cent. of his time was spent in saying that he did not intend to visit the County Palatine, or to carry out any Duchy business. Which Select Committee should I approach to find out whether the right hon. Gentleman's job is really worthwhile, or whether he should go?

Mr. Speaker: As I said, I give procedural advice in private.

Mr. Anthony Beaumont-Dark: On a point of order, Mr. Speaker. You mentioned new clause 3 of the Finance Bill. The new clause is about the future of banking. However, the chief worry of more than 200,000 people in this country concerns what has happened in the past. The BCCI problem is not about the future, but about something awful that happened in the past. Why should there not be a separate debate?

Mr. Speaker: There will be an opportunity to consider the matter, and lessons for the future can be drawn from the past. The hon. Gentleman should not find it too difficult to refer to it later.

Statutory Instruments, &c.

Mr. Speaker: With the leave of the House, I will put together the Questions on the motions relating to statutory instruments.
Motion made, and Question put forthwith pursuant to Standing Order No. 101(3)(Standing Committees on Statutory Instruments, &amp;c.),
That the draft Social Security (Severe Disablement Allowance) Amendment Regulations 1991 be referred to a Standing Committee on Statutory Instruments, &amp;c.—
That the draft Disability Living Allowance Advisory Board Regulations 1991 be referred to a Standing Committee on Statutory Instruments, &amp;—c.—[Mr. John M. Taylor.]

Question agreed to.

WAYS AND MEANS

EMPLOYEE SHARE SCHEMES

Resolved,
That provision may be made about savings-related share option schemes and profit sharing schemes.—[Mr. Maude.]

Orders of the Day — Finance Bill

Not amended in the Committee and as amended (in the Standing Committee), considered.

New Clause 11

EMPLOYEE SHARE SCHEMES: NON-DISCRIMINATION

.'—(1) The Taxes Act 1988 shall be amended as follows.

(2) In Part III of Schedule 9 (requirements applicable to savings-related share option schemes) in paragraphs 19(b) and 20 for "pensionable age" there shall be substituted "the specified age".

(3) In Schedule 10 (further provisions relating to profit sharing schemes) in sub-paragraph (b) of paragraph 2 and in sub-paragraph (c)(ii) of paragraph 3 for "pensionable age" there shall be substituted "the relevant age", and at the end of each of those paragraphs there shall be inserted—
In this paragraph, the reference to the relevant age is a reference, in the case of a scheme approved before the day on which the Finance Act 1991 was passed, to pensionable age and, in the case of a scheme approved on or after that day, to the specified age".

(4) In section 187(2)(definitions for the purposes of provisions relating to employee share schemes) after the definition of "shares" there shall be inserted—
'specified age', in relation to a scheme, means the age specified in pursuance of paragraph 8A of Schedule 9 as the specified age for the purposes of the scheme;".

(5) In Part II of Schedule 9 (requirements generally applicable to employee share schemes) after paragraph 8 there shall be inserted—
8A.—(1) In the case of a savings-related share option scheme or a profit sharing scheme, the scheme must specify what age is to be the specified age for the purposes of the scheme.

(2) The age specified—
(a) must be the same for men and women, and
(b) must not be less than 60 and not more than 75."

(6) Subsections (2) and (5) above shall have effect in relation to a scheme not approved before the day on which this Act is passed.'.

Brought up, and read the First—[Mr. Maude.]

The Financial Secretary to the Treasury (Mr. Francis Maude): I beg to move, That the clause be read a Second time.
The new clause will replace the term "pensionable age" in the approved all-employee share scheme legislation with a new term, "specified age". The change will apply to schemes approved on or after Royal Assent. The effect of the change is to ensure that schemes approved after Royal Assent provide equal treatment for men and women.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 12

EXPENSES OF ENTERTAINERS

'.—(1) Section 201A of the Taxes Act 1988 (deduction of fees paid by entertainer to employment agency) shall be amended as follows.

(2) In subsection (1)(a) after "subsection (2)" there shall be inserted "or (2A)".

(3) The following subsection shall he inserted after subsection (2)—

"(2A) Fees fall within this subsection if—
(a) they are paid by the employee in pursuance of an arrangement under which a bona fide co-operative society agrees, or the members of such a society agree, to act as agent of the employee in connection with the employment, 
(b) they are calculated as a percentage of the emoluments of the employment or as a percentage of part of those emoluments, and 
(c) they are defrayed out of the emoluments of the employment falling to be charged to tax for the year concerned."

(4) The following subsection shall be inserted after subsection (3)—
(3A) Subsection (3) of section I of the Industrial and Provident Societies Act 1965 (co-operative society does not include profit-making society) shall apply for the purposes of subsection (2A)(a) above as it applies for the purposes of that section.

(5) The following subsection shall be inserted after subsection (4)—
(4A) Subject to subsection (4) above, a deduction by virtue of this section as regards a particular employment and a particular year of assessment may be based on fees falling within subsection (2) above or fees falling within subsection (2A) above, or both.

(6) The amendments made by this section shall apply for the year 1990–91 and subsequent years of assessment.

(7) Any such adjustment (whether by way of discharge or repayment of tax, the making of an assessment or otherwise) as is appropriate in consequence of this section may be made.'—[Mr. Maude]

Brought up, and read the First time.

Mr. Maude: I beg to move, That the clause be read a Second time.
In the debate on the taxation of actors in Committee, I proposed a change to the relief that we introduced last year which allows actors and other theatrical artistes taxed under schedule E to claim tax relief on fees that they pay to theatrical agents. Those fees can amount to 10 to 15 per cent. of an actor's income and it is therefore a valuable relief for those starting out in the theatre.
It was not appreciated at the time, although we consulted with the industry's tax working group, that the provision did not cover the position of actors who, rather than employ a traditional agent, preferred to get together with colleagues and to form their own co-operative agencies. We did not intend that group to be excluded. Indeed, they represent some of the newcomers to the theatre whom we particularly wish to help.
New clause 12 extends the relief introduced last year to agency fees paid to co-operative societies. The new relief will apply to fees paid out of earnings taxed under schedule E where a bona fide co-operative society acts as an agent in finding work for a theatrical artiste. Fees up to the


present limit of 17·5 per cent. of earnings can qualify for relief. On this occasion it seemed appropriate to back-date the new relief so that, as with the relief that we introduced last year, it will apply to fees paid after 5 April 1990.

Mr. Chris Smith: We welcome new clause 12 and we will be happy to speed it on its way. We argued strongly during the Committee stage of last year's Finance Bill, and we argued strongly again this year in our deliberations upstairs, that the Government and the Inland Revenue were being unfair to actors, especially those who are just starting out in the profession in the switch from schedule D to schedule E consideration of their tax treatment which has taken place since last year.
As a result of our representations, and of those of the hon. Member for Beaconsfield (Mr. Smith) on behalf of actors, the Government have sought to make some ameliorations to the new tax regime to which new actors are subjected. Last year relief was introduced for the agents' fees that actors pay up to a percentage limit. This year, the Government have gone a little further and, with the small step in new clause 12, they are giving relief where the agency to which an actor belongs is a co-operative agency. It provides some additional and welcome relief.
However, the Government have not gone far enough and they have yet to address a number of specific issues. We want the Government to restore the position that existed before last year. When we take over on the Government Benches, we will do that. In the meantime, we want to raise two matters. The first is the touring allowances that are paid to actors, and the second is the audition fees that are paid by actors, both of which deserve better consideration. We hope that the Government will now use their breathing space to consider those two further items. Agents' fees are one thing and co-operative agency fees are another, and the new clause is a welcome step on those matters. We want the Government to take some more steps to restore the position for actors who are not only a hard-pressed profession, but who form part of our heritage and part of our distinctive cultural strength, which we must preserve at all costs.

Dame Elaine Kellett-Bowman: I thank my hon. Friend the Minister for introducing the alterations that we sought from him last year. Will he join me in congratulating the founder of the actors' co-operative in Lancaster, Mr. Stephen Allen, who has just become this country's Mastermind?

Mr. Peter Bottomley: I join in welcoming the new clause, which was admirably moved by my hon. Friend the Financial Secretary. Most hon. Members will not take the threat of the hon. Member for Islington, South and Finsbury (Mr. Smith) too seriously because one of the groups who have prospered in the past 12 years of Conservative government have been people involved in culture, the arts and literature. However, we agree that the hon. Gentleman is right in saying that we have not gone far enough in restoring the position of young actors.
Will my hon. Friend take advice from our hon. Friend the Member for Richmond and Barnes (Mr. Hanley), who might be able to get together a group of leading actors who could speak not on their own behalf, but on behalf of the many hundreds of young actors who each year are in the position that they were in when they started? It might then

be possible to go further, either in terms of Inland Revenue procedures or in terms of next year's Finance Bill, so that new actors have the chance to come into the profession without adverse tax treatment.

Mr. Maude: I join my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) in her tribute to the new Mastermind, whose connection with the new clause I am glad to acknowledge.
I take the point of my hon. Friend the Member for Eltham (Mr. Bottomley. When we discussed the matter in Committee, I said clearly that I would consider carefully whether practical steps could be taken to meet the pressing anxieties especially of those starting out in the acting profession. That examination is under way and I will pursue it. I made it clear in Committee that I was by no means unsympathetic to the points that had been made.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 18

INVESTMENT EXCHANGES AND CLEARING HOUSES: STAMP DUTY

'.—(1) The Treasury may make regulations providing as mentioned in this section with regard to any circumstances which—
(a) would (apart from the regulations) give rise to a charge to stamp duty,
(b) involve a prescribed recognised investment exchange or a prescribed recognised clearing house, or a member or nominee (or member or nominee of a prescribed description) of such an exchange, or a nominee (or nominee of a prescribed description) of such a clearing house, or a nominee (or nominee of a prescribed description) of a member of such an exchange, and 
(c) are such as are prescribed.

(2) The regulations may provide that the charge to stamp duty shall be treated as not arising or (depending on the terms of the regulations) as reduced.

(3) Regulations under this section—
(a) shall be made by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons; 
(b) may include such supplementary, incidental, consequential or transitional provisions as appear to the Treasury to be necessary or expedient;
(c) may make different provision for different circumstances;
(d) may make any provision in such way as the Treasury think fit (whether by amending enactments or otherwise).

(4) In this section—
(a) "prescribed" means prescribed by the regulations,
(b) "recognised investment exchange" means a recognised investment exchange within the meaning of the Financial Services Act 1986, and
(c) "recognised clearing house" means a recognised clearing house within the meaning of that Act.'.—[Mr. Maude.]

Brought up, and read the First time.

Mr. Maude: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to take Government new clause 17.

Mr. Maude: New clauses 17, 18 and 19 flow from the proposed merger of the London traded options market and the London international financial futures exchange,


which, it is hoped, will take place later this year to form the London derivatives exchange. New clauses 17 and 18 give power to the Treasury to make regulations about stamp duty in connection with the proposed merger. At present, the traded options market is part of the stock exchange and present legislation reflects that. The merger of the options and futures markets will change that basic structural fact. The legislation will have to be adapted to fit the new exchange if the existing tax reliefs are not to be lost. We are giving careful consideration to exactly what changes may be required. Given that the new structures are not yet totally clear, it is not possible to form final judgments on that point.
The new clauses provide enabling powers so that we can make the necessary changes by regulation at the appropriate time.

Dr. John Marek: Before asking the Minister a brief question about the new clauses, I should like to advise him that the Opposition recognise the need for them given that the London derivatives exchange will be different and, unless the new clauses are passed, will operate under a different tax regime from the existing two institutions. As the notes on clauses state, the powers that will be sought and the regulations that will be applied are rightly wholly relieving, as the London derivatives exchange will be liable to extra tax without such relieving powers. We recognise, therefore, that the new clauses are necessary to ensure that the position does not change.
What does the Financial Secretary intend to do under the regulations? Does he intend to bring in new reliefs or does he intend that the position should be broadly the same? Stamp duty and stamp duty reserve tax are due to be abolished in any case when TAURUS—the transfer and automated registration of uncertified stock—comes on stream, so I am not including that in my question. I should, however, appreciate any help that the Financial Secretary can give on this point.

Mr. Maude: I can confirm to the hon. Gentleman that it is our intention simply to reflect existing reliefs in the provisions because if we did not make provisions, such as we are giving ourselves the power to make under the new clauses, under the merger that we expect to take place, the reliefs might disappear and would not be available. Our intention is simply to replicate the existing provisions as far as possible and to enable them to be applied sensibly to the new circumstances of the new derivatives exchange.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 17

INVESTMENT EXCHANGES AND CLEARING HOUSES: SDRT

.—(1) The Treasury may make regulations providing as mentioned in this section with regard to any circumstances which—

(a) would (apart from the regulations) give rise to a stamp duty reserve tax,
(b) involve a prescribed recognised investment exchange or a prescribed recognised clearing house, or a member or nominee (or member or nominee of a prescribed description) of such an exchange, or a nominee (or nominee of a prescribed description) of such a clearing house, or a nominee (or nominee of a prescribed description) of a member of such an exchange, and

(c) are such as are prescribed.

(2) The regulations may provide that the charge to stamp duty reserve tax shall be treated as not arising or (depending on the terms of the regulations) as reduced.

(3) Subsections (3) and (4) of section (Investment exchanges and clearing houses: stamp duty) above shall apply for the purposes of this section as they apply for the purposes of that.'.—[Mr. Maude.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 19

BOND WASHING

'.—(1) In section 732 of the Taxes Act 1988, after subsection (2)(exemption for market makers) there shall be inserted—

"(2A) Subsection (1) above shall not apply in prescribed circumstances if—

(a) the first buyer is—

(i) a prescribed recognised clearing house, or
(ii) a member, of a prescribed class or description, of a prescribed recognised investment exchange, and
(b) the subsequent sale is carried out by the first buyer after a prescribed date and in the ordinary course of his business."

(2) At the end of that section there shall be added—
(7) For the purposes of subsection (2A) above—
prescribed" means prescribed in regulations made by the Treasury;
recognised clearing house" means a recognised clearing house within the meaning of the Financial Services Act 1986;
recognised investment exchange" means a recognised investment exchange within the meaning of that Act.".'.— [Mr. Maude.]

Brought up, and read the First time.

Mr. Maude: I beg to move, That the clause be read a Second time.
The new clause addresses the issue of representations from the exchanges that we have just discussed. It has been put to us that the exemption for market makers under section 732(2), covering bond washing, will be too limited in the context of the operations of the new merged market.
The substantive point, of whether an extension should be made to the exemption for market makers to include London derivatives exchange dealers, is still under review. The new clause simply provides the enabling power for regulations to extend the exemption. That has to be done in this year's Finance Bill because it is intended that the LDE will be operational by the end of the year. The case for making the substantive change has yet to be made and considered. The taking of the powers does not imply a Government view at this stage on the desirability of extending the exemption. Parliament will have an opportunity in the normal way to scrutinise any regulations implementing any substantive change that we seek to make.

Question put and agreed to.

Clause read a Second time, and added to the Bill

New Clause 20

AUDIT POWERS IN RELATION TO NON-RESIDENTS

'. The following section shall be inserted after section 482 of the Taxes Act 1988—
Audit powers in relation to non-residents.

482A.—(1) The Board may make regulations with respect to the exclusion, in relation to investments of persons who are not ordinarily resident in the United Kingdom, of powers conferred by regulations made by virtue of section 477A (2)(a) or 482(11)(aa)("audit powers").

(2) Regulations under subsection (1) above may in particular—

"(a) make provision for the exclusion of audit powers in the case of any building society or deposit-taker to be dependent on whether the society or deposit-taker is approved by the Board for the purposes of the regulations and on the scope of that approval;
(b) make provision with respect to the approval of building societies and deposit-takers by the Board for the purposes of the regulations;
(c) make provision with respect to, and with respect to alteration of, the scope of approval by the Board for the purposes of the regulations;
(d) make provision with respect to the termination of approval by the Board for the purposes of the regulations; and
(e) make provision with respect to appeals against decisions of the Board with respect to approval for the purposes of the regulations, including decisions with respect to the scope of such approval.

(3) Regulations under subsection (1) above may—

(a) make different provision for different cases; and
(b) contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.

(4) In this section "deposit-taker" has the meaning given by section 481(2).".'.—[Mr. Maude.]

Brought up, and read the First time.

Mr. Maude: I beg to move, That the clause be read a Second time.
The purpose of the new clause is to enable banks and building societies to make special arrangements with the Revenue on maintaining records relating to accounts held by their non-ordinarily resident depositors. Where satisfactory internal procedures for self-regulation are introduced, the Inland Revenue's power to audit those accounts will cease to apply. The new clause responds to some genuine anxieties about a provision in last year's Finance Bill. It follows exhaustive discussions between the Revenue and the banks. I hope that the provision meets with the approval of the House.

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Mr. Nicholas Brown: We should like an assurance from the Financial Secretary that the Revenue will not in any way be disadvantaged by the new clause in its eternal pursuit of those who evade their obligations to pay tax.

Mr. Maude: There is always a balance to be struck between the proper interests of the Revenue and, indeed, of this House in ensuring that tax which is properly due is paid and the interest of retaining proper confidentiality. I have considered the matter carefully and I am satisfied that that balance is properly struck in this case.

Mr. D. N. Campbell-Savours: Will this new clause affect the affairs of the company that purchased Westminster cemeteries, which operates in the United Kingdom as well as abroad?

Mr. Maude: I cannot comment on that without being given any notice whatever. It is an interesting and fascinating question, but one to which I am afraid that I must deny the hon. Gentleman an answer.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 23

CAPITAL ALLOWANCES: HIRING MOTOR CARS

'.—(1) Section 35 of the Capital Allowances Act 1990 (motor cars) shall be amended as mentioned in subsections (2) and (3) below.

(2) In subsection (2)(reduction of allowance for hiring cars whose retail price when new exceeds £8,000) at the end there shall be inserted the words "; but this subsection shall have effect subject to subsection (3) below.
(3) The following subsections shall be inserted after subsection (2)—
(3) Subsection (2) above shall not apply where the hiring is under a hire-purchase agreement under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1 per cent. of the retail price of the motor car when new.
(4) In subsection (3) above 'hire-purchase agreement' has the meaning given by section 784(6) of the Income and Corporation Taxes Act 1988.
(4) This section shall have effect in relation to any chargeable period or its basis period ending on or after the day on which this Act is passed.'.—[Mr. Maude.]

Brought up, and read the First time.

Mr. Maude: I beg to move, That the clause be read a Second time.
The new clause makes a minor and technical amendment to a provision in the Capital Allowances Act 1990 which discriminates between businesses that use hire-purchase arrangements and those that use other methods of finance. It removes hire-purchase transactions from the scope of rules that restrict tax relief for rental payments on the hire of cars costing more than £8,000. Those rules prevent the circumvention of the capital allowances restriction which applies to such cars.
A straightforward hire-purchase agreement is in essence equivalent to an outright purchase financed by a loan. That fact is recognised in the general application of the capital allowances legislation by the granting of capital allowances on the asset in question to the hire purchaser. As a result, the capital allowances restriction for cars bites directly on the hire purchaser and therefore there is no need for the leasing restriction to apply to hire purchase.
The original 1961 legislation on cars made it explicit that hire-purchase agreements were not to be subject to the leasing restriction. But the relevant legislation has gone through several reconstructions and consolidations since then. It appears that the law may inadvertently have been changed in the process. The Revenue has received legal advice that in its existing form the leasing restriction applies to the finance charge element of a hire-purchase payment. If that were allowed to continue, businesses and traders who bought cars on hire purchase would face additional tax and compliance burdens. It is likely that


among them would be smaller businesses, the credit status of some of which might require them to obtain finance through hire purchase rather than a straightforward loan.
The new clause will take straightforward hire-purchase agreements—that is those with a nominal purchase option—outside the scope of the leasing restriction, thereby restoring the legislation to its original intention and bringing hire purchase back into line with outright purchase. It is a minor but nevertheless helpful change for businesses which meets anxieties voiced by the leasing industry. We thought it right to introduce legislation at this, the earliest opportunity. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 3

MANDATORY REPORTS TO BE MADE BY BANKS

'(1) Each bank carrying on a bona fide banking business in the United Kingdom shall, within six months of the end of each of its accounting periods, prepare a report which shall be sent to the Treasury and to the Bank of England, giving details of—

(i) the average interest rate charged on all of its loans in aggregate to small businesses, the average aggregate principal of such loans and the average number thereof;
(ii) the average interest rate charged on all of its loans in aggregate to large businesses, the average aggregate principal of such loans, and the average number thereof;
(iii) each loan made during the year or in existence at the beginning of the year where the average percentage rate of interest charged on the loan exceeded such rate as is specified for the purposes of this section, not being less than 3% above base rate for the year as a whole;
(iv) the average level of provisions made against loan interest due and against loan principal for loans of the sorts described at (i) and (ii) above, and the provisions, if any, made against each loan falling within (ii) above, and
(v) such other matters as may be prescribed by regulations made under this section.

(2) The Treasury shall make such regulations as are needed to give effect to this section; and in particular such regulations shall define the terms "small businesses" and 'large businesses" mentioned in subsection (1) above and the specified rate of interest, and shall state the extent to which loans to a single borrower or associated borrowers may be regarded as a single loan for the purposes of this section.'.—[Mr. Chris Smith.]

Brought up, and read the First time.

Mr. Chris Smith: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to take the following: new clause 35—Statement of interest and charges—

'(1) This section applies to any bank operating in the United Kingdom.

(2) When a bank sends a customer a bank statement detailing recent debits from and credits 'to the account of that business customer, the bank must publish on that statement the following items:

(a) the interest rate or interest rates that have been applied to borrowings by that business over the period covered by the statement;
(b) an itemised list of charges levied by the bank on the account of that business over the period covered by the statement.'.

New clause 37—Reports by banks as to enquiries
'—.(1) Any bank granted authorisation to receive deposits under section 9(1) of the Banking Act 1987 shall publish within one month of each accounting period a statement detailing—

(a) the nature of any enquiries of which it is aware that are taking place or have taken place during that same accounting period into its affairs or the affairs of any associated company where those enquiries are being or have been carried out by supervisory or regulatory authorities, auditors appointed by such authorities, authorities responsible for investigation of fraud, or the Bank of England; and
(b) the results of such enquiries.
(2) Publication of the results of such enquiries shall include all information as to communications and all correspondence to and from the authorities as defined in subsection (1)(a) unless such information as to communications or correspondence has not been approved for publication by those authorities.
(3) Where, pursuant to subsection (2) above, information as to any communication or correspondence has not been approved for publication by the appropriate authorities, a report shall be submitted to Mr. Chancellor of the Exchequer detailing the reasons why that information has not been published.'.

Mr. Smith: This debate on new clause 3, new clause 35 tabled by the Liberal Democrats and new clause 37 tabled by my hon. Friend the Member for Workington (Mr. Campbell-Savours) will enable us to discuss two particular and important issues that are of great public concern and relate to the procedures and practices of the banking industry.
The first issue is the treatment by banks of small businesses, especially in relation to the interest charged on loans that are taken out by small businesses, and the procedures followed by banks in the light of a falling base rate and not so rapidly falling interest rates which are charged to businesses that are borrowing money. The second issue relates to the regulatory system of banks, investigations of banks and the information that the public have about those investigations. That is uppermost in our mind in relation to the practices and record of the Bank of Credit and Commerce International.

Mr. Terence L. Higgins: I am a little uncertain about the exact status of new clause 3, as it appears in the name of the shadow Chief Secretary to the Treasury, but not in the name of the shadow Chancellor of the Exchequer. Is it official Opposition policy?

Mr. Smith: I am surprised that the right hon. Gentleman, who is normally very perceptive in these matters, should have made such an elementary error. During the proceedings on the Finance Bill, both in Committee upstairs and on the Floor of the House, it is usual practice for the shadow Chief Secretary to lead for the Opposition on amendments and speeches. The new clause which she, other colleagues and I have tabled has the full endorsement of the shadow Chancellor. We are simply following the normal practice in ensuring that her name stands at the top of the list.

Mr. Higgins: I fully understand that point, but it does not answer my question. Is new clause 3 official Opposition policy?

Mr. Smith: The right hon. Gentleman again betrays a certain degree of ignorance, which suprises me. As I have said, the Opposition tabled the new clause to the Finance


Bill with the full support of the shadow Chancellor. It is an official Opposition new clause. If the Government were minded to support it in the Division Lobbies at the end of our proceedings, we should be only too delighted to see it on its way into the Finance Bill. In so doing, it might ensure that some of our practices were improved generally.
The primary issue identified in new clause 3—

Mr. Higgins: rose—

Mr. Smith: I must proceed. I have answered the right hon. Gentleman twice on that point.

Mr. Higgins: Is new clause 3 official Opposition policy?

Mr. Smith: If the right hon. Gentleman wishes me to repeat the answer a third time, I am happy to do so, but other hon. Members wish to contribute to the debate.
The first matter raised in new clause 3 is the fundamental issue of the relationship between banks and small businesses. In recent weeks we have heard a lot about the concern among small businesses about the way in which the banking system has treated them. The case has been most strongly put by the National Federation of Self Employed and Small Businesses in a submission to the Treasury which contained more than 100 case histories of member businesses that thought that they had been badly treated by the banks. One of those businesses claimed to have suffered recently a 250 per cent. increase in charges, while another was charged a £50 fee for being overdrawn for one day in the previous 18 months.
Despite the fact that the high street banks claimed that most small businesses were paying only 4 per cent. or less above the base rate, the submission included details of businesses that were paying 6, 9 or even 15 per cent. over the base rate. Such are the concerns that have been clearly identified by the National Federation of Self Employed and Small Businesses.
Further concerns were identified two years ago in the Jack report published by the review committee on banking services. A significant number of recommendations were made in that report on the need to ensure a more friendly culture among banks in their dealings with small businesses.
Such is the scale of the concern that has been voiced by people in industry. However, the banks protest that they are not the guilty party. Recently, Shearson Lehman Brothers conducted an investigation into the rates charged by banks, especially the four large United Kingdom clearing banks, to small businesses. Its findings were, perhaps surprisingly, remarkably kind to the practices of the banks. It reported that some banks were better than others, but none the less it believed that some of the criticisms levelled at the banks were somewhat overstated.
All we have to go on is the claims that are made, on the one hand, by small businesses and, on the other, the claims made by the banks. We understand that the Treasury has conducted an analysis of what is going on and perhaps we will hear a little more about the Treasury's findings during the debate.
The new clause seeks to ensure that, at the very least, the public can have access to information about precisely what the banks are up to. So long as businesses claim that they are being unfairly penalised by the banks, while the banks say that they are in no way unfairly treating those

small businesses, there is an obvious need for clear information about what is happening. That information should be available to the public, the small business sector and those who are considering starting up a small business.

Sir Ian Stewart: The new clause states that a report should be:
sent to the Treasury and the Bank of England".
Does that also imply that the report should be made public at the same time?

Mr. Smith: It states in the new clause that the report should be
 sent to the Treasury and the Bank of England,
because there may conceivably be items of commercial confidentiality included in such a report. However, we would confidently expect that the Treasury—at least under a Government who cared about public access to information—would wish to make public whatever useful findings that could be made on a comparative basis from the report submitted to it. It was with that in mind that we drafted the new clause.
A recent example illustrates the banks' understanding of small businesses. A constituent who happens to be an adviser to a number of small businesses drew my attention to a company that supplies high-quality shop fittings and employs 20 or 25 people, mainly skilled workers, in Somerset. Its order book contained orders amounting to some £1·25 million to a major customer on a cost-plus basis, so there was no risk of the company making a loss on the deal. Its marketing had attracted a DTI grant and sales of the firm's products were increasing. Therefore, on a cursory analysis, the firm was conducting its affairs with considerable success. However, National Westminster bank has now stepped in to reduce its overdraft arbitrarily by some 25 per cent. on the basis that the value of properties has decreased nationwide. About five months after the bank reduced the overdraft, it brought in Cork Gulley to close down the business overnight, dismissing all the staff and returning the equipment, because it believed that the company was no longer viable.
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The way in which National Westminster bank acted in that incident is not only a tragedy for the company and employees concerned but serves to highlight how little the banks in this country understand about the practicalities and realities of the business world which those in industry and the market place face each day. An improvement in understanding between the banks and their customers in the small business sector is desperately needed and I hope that the new clause will help to bring it about.

Mr. Michael Latham: Where not such decisions taken, not so long ago, by local bank managers who knew their customers and worked with them? Now they are often arbitrarily determined decisions made much higher up the line and the local bank manager has no control.

Mr. Smith: The hon. Gentleman makes an extremely pertinent point. It is borne out by the decision taken by National Westminster bank to reduce overdraft facilities on the basis of a national assumption about the value of property without looking at the circumstances of individual companies or the different regions of the country. We strongly endorse the need for much greater local input into such decision making.
Having said that we want to know precisely what the banks are up to and that we want the banks to treat businesses properly and in a sensible and user-friendly way, we must not let the main culprit go unremarked. The main culprit in the problems faced by small businesses are the Government, whose policy of high interest rates has been the root cause of the difficulties faced by small businesses, whatever the banks may have been up to.
Even after last Friday, interest rates are 11 per cent. in Britain compared with 9 per cent. in Germany and France, and 5.5 per cent. in Japan and the United States. Interest rates in this country have been at 11 per cent. or more since August 1988, and were held at 15 per cent. for an entire year while the present Prime Minister was Chancellor. In the first half of this year, there were 23,000 business failures—a rise of 66 per cent. on the same period a year earlier and the highest level ever recorded. According to the Dun and Bradstreet figures, 900 business are going out of business every week in this country.
That is the Government's precise record, and it is directly attributable to the high interest rate policy that they have followed. They have used high interest rates as the only weapon to try to take demand out of the economy. We know from the savage experience of the recession that that taking out of demand has been belatedly, but all too substantially, successful. It has meant that we have been plunged into recession, which has dramatically affected the small business sector.
The Government should not seek to evade their responsibility for the problems faced by small businesses in this country. The Government are the principal culprits; the banks may or may not be secondary culprits in the affair. We will not know whether they are unless and until they are required to provide the information, as they would have to do under our new clause. We strongly believe that new clause 3 would represent an improvement in the availability of information and highlight the way in which Government policies have been operating to the detriment of the small business sector in this country.
New clause 37 was tabled by my hon. Friend the Member for Workington as a direct result of the enormous concern that is felt, and has been felt in the past week, at the closure of the Bank of Credit and Commerce International a week ago last Friday. It raises two primary issues, the first of which my right hon. and learned Friend the Chancellor drew attention to a week ago—[Laughter.] My right hon. and learned Friend the shadow Chancellor, I should say. I am running ahead of myself, but before too long we shall be referring to him as the Chancellor—the sooner that day comes, the better.
Last Monday, my right hon. and learned Friend raised the fundamental issue of the inadequacy of the depositors' protection scheme as it stands. It effectively places a cap of £15,000 on compensation available to those people and businesses that have put money into BCCI. That sits oddly alongside the investors' protection scheme, run under the auspices of the Securities and Investments Board, which has much more generous limits on the protection offered. The investors' compensation scheme pays up to the first £30,000 in full, and 90 per cent. of losses between £30,000 and £50,000.
Last week, we asked the Economic Secretary to the Treasury why the depositors' protection scheme was so much less generous than the investors' protection scheme, but received no answer. We should like an answer now. We also drew the attention of the Economic Secretary to the

example of other countries where deposit protection schemes are more generous than those available here. For example, the Canadian scheme offers 100 per cent. compensation up to Canadian $60,000. That is substantially more generous than the scheme that is in place here. The first issue is whether the deposit protection scheme is adequate and, if not, why not. Many small businesses, especially in the Asian community, have been badly hit by the closure of BCCI. The relief offered by the scheme, much delayed as I fear it will be, seems to be inadequate.
The second question raised by the affairs of BCCI and to which new clause 37 refers is perhaps even more fundamental. It is when the Bank of England and the Government knew that the affairs of BCCI required investigation and why they did not carry out such an investigation at an earlier stage. If the investigation that was clearly necessary had taken place earlier, much of the pain caused to depositors and employees of BCCI could have been avoided.
We know that doubts were expressed by Ernst and Young when they were BCCI's auditors some two or three years ago. We know that considerable doubts were raised in the marketplace for months before the Bank of England acted. We also know that doubts arose as a result of the prosecutions in Florida last year and that the present auditors, Price Waterhouse, delivered a report to the Bank of England in March 1990 which raised serious questions about the way in which BCCI was operating.
If reports in The Sunday Times yesterday are correct, the question of what information was provided to the Bank of England and the Treasury and why they failed to act upon it becomes urgent.

Mr. Campbell-Savours: Does my hon. Friend accept that the statement by Lord Henley in April last year in the other place is significant? When he made that statement, what did the noble Lord know that was not revealed to the other place in the debate?

Mr. Smith: I cannot answer that question, which is an important one. I hope that we shall get an answer from the Government. If we do not get a satisfactory answer I am sure that my hon. Friend will wish to press the matter if he speaks in the debate. My hon. Friend will be aware that whatever the noble Lord may have said at that time was said after the Price Waterhouse report of March 1990 was delivered to the Bank of England.The Sunday Times tells us that that report,
had already revealed that BCCI was in serious financial trouble, with major gaps in its accounts raising the possibility of misuse of funds, a large number of questionable loans outstanding and lax internal controls.
If that catalogue of impropriety was suspected at that stage, why did the Economic Secretary tell us last week that the Bank of England had sufficient information to act only 10 days before last Monday? Why was it that, in March 1990, the Bank of England did not commence serious investigations? That is a most important point. It is not only a question whether there is misuse of funds or potential fraud, or whether the Bank of England has powers to take action if it suspects fraud. The Bank of England is also supposed to reassure itself about whether someone running a bank is a "fit and proper person" to do so. Under that provision, there must have been scope for


questions to be raised, for investigations to be started and for the Bank of England to begin to take action earlier than it did.

Mr. Gerald Bermingham: Is not one of the duties of the Bank of England to reassure itself about the liquidity of banks? In other words, it has to be sure that, if there is a run, each bank can meet its obligations. Bearing in mind the Price Waterhouse report of March 1990, was not it clear that the Bank of England could not properly have reached that conclusion?

Mr. Smith: My hon. Friend raises an important point. It seems that BCCI was adept at shuffling funds around among its various national identities to disguise the true position of its liquidity. Only a thorough investigation could have shown the true position. That is why a thorough investigation should have taken place sooner than it did.

Mr. Anthony Nelson: I am obliged to the hon. Member for Workington (Mr. Campbell-Savours) both for his remarks and for new clause 37, which raise reasonable questions that should be addressed. I have a question for the hon. Member for Islington, South and Finsbury (Mr. Smith), which must be addressed, as his party has pretensions to government. Is not it important for any Government, and the Bank of England, to ensure that there is neither a run on a bank nor a lack of confidence in the banking system? An extremely difficult balance must be struck between precipitating a run on a bank, and thus closing it peremptorily, and leaving it too long and allowing people to be defrauded. In that difficult balance of judgment, where does the hon. Gentleman stand? The Bank of England instituted inquiries properly, dealt with the matter exemplarily and, when it had clear evidence, closed the bank.

Mr. Smith: The hon. Gentleman is right to identify the difficult balance which the banking regulatory authorities have to undertake. It is a balance between raising too many public questions too early, and therefore undermining confidence in part of the banking system, and ensuring that, where bad practice is taking place, it is immediately investigated. Although we have our suspicions, we do not yet have enough information to answer our question about whether the Bank of England got the balance right with respect to BCCI. The reports of the past week leave us with no certainty that it did.
If the hon. Member for Chichester (Mr. Nelson) has read new clause 37 closely, he will know that it addresses this point. It requires that if a bank has been cleared of any wrong doing, the Chancellor of the Exchequer can require the report of the investigations to be made to him rather than be made public. That is a substantial protection against the confidence problems that the hon. Gentleman has identified. It is our belief that my hon. Friend the Member for Workington has addressed precisely that issue in his carefully worded new clause.
I shall draw my remarks to a close, because I know that many hon. Members wish to contribute to this important debate. It seems to us that we have still to hear a satisfactory response from the Government to the two overwhelming questions that must be directed to the

tragedy of the BCCI closure, which has caused so much difficulty for so many in this country. First, why is the deposit protection scheme so inadequate? Secondly, what did the Bank of England know, when did it know, how soon did it know and how rapidly or slowly did it seek to investigate? It is our impression from the information that is available to us that there are serious question marks about the way in which the Bank of England, the regulatory authorities and the Government have acted.

Mr. James Wallace: It is obvious that new clause 35, in the names of my right hon. and hon. Friends, is linked with new clauses 3 and 37. I shall take up later the final comments of the hon. Member for Islington, South and Finsbury (Mr. Smith), but first I shall direct my remarks to the nub of the original problem, to the publicity that that has been given in recent weeks to exceptionally high interest rates allegedly being charged by several clearing banks, including Scottish banks, and to the damage that those rates have done, especially to small businesses.
As the hon. Member for Islington, South and Finsbury has reminded us, the high interest rates that are being charged are a regrettable and damaging symptom of the general regime of high interest rates that we have suffered for a long time. Life has not been made any easier for small businesses by the Government opting for the highest charge available to them for this year's uniform business rate in England and Wales. The Government are taking more from the business sector, particularly from small businesses, than they are putting back into it by means of the measures in this Bill.
There has been a dramatic and record increase in the failure of small businesses in recent times. Nine out of 10 of the businesses that have gone under employed fewer than 100 people. The major redundancies that are announced by household-name companies tend to attract news headlines, but the cumulative effect of small businesses going under is one of the principal causes of an increasing rate of unemployment. It is important, therefore, that we examine the implications of the Government's high-interest-rate policy and the way in which the banks have dealt with small businesses.
The main criticism and focus of attention has been on the rates of interest that are charged by banks to small businesses, but that is not the sole problem that small businesses face in their relationships with banks. I have heard complaints about the fact that a bank can increase the interest rate that is paid by a small business when the owner of the business reaches his current overdraft limit and has to negotiate an increase. That is often taken as an opportunity to increase the lending rate.
Another factor is the deduction of bank charges at source, invariably without notification to the business concerned. As that happens when it is least expected, or even when it is unexpected, the business can find that it has exceeded its overdraft limit and that charges are being applied at punitive rates.
Some bank managers restrict borrowing to bring discipline to bear upon a business if it is not going about its business in the way that the bank would like. There are banks that charge an arrangement fee if a business takes the bank's advice and reduces its level of borrowing. Non-negotiable charges are imposed unilaterally by the bank and the unfortunate customer becomes aware of them only when he is told to pay up.
Another problem is that of the collateral demanded from small businesses which seek to take out loans, If one studied law, as I did, one worked out the respective advantages of limited liability companies or of unincorporated firms. We were told that one of the advantages of a limited liability company was that if the business went under, the authorities could not come after one's home or other assets. However, the truth is that many limited liability companies are family firms and they are asked to put their homes on the line as collateral. There are many examples of banks asking for homes as collateral as a sign that the person involved is committed to the business although that person has already put on the line his savings, his way of life arid his energy. I fear that the use of such collateral may have a damaging effect in the long term because, if so much personal risk is involved, it may inhibit a business's growth, or make it think twice about diversifying or taking up new ideas.
Those are examples of the banking sector not necessarily being in harmony with the small business sector. However, there are also problems with the small businesses themselves. Some go over their overdraft limit and some are not especially good at keeping the bank provided with information. Some perhaps use overdraft expenditure for capital investment when it might be much better to examine other ways of raising capital. Perhaps the recent furore over interest rate charges has given some focus to the search for a way in which the relationship between banks and small businesses can be improved. In some respects, that is a matter not for the House or for the Government but for good practice, and that can often be achieved without regulation.
New clause 35 proposes that, when making interest rate charges, the banks would be obliged to stipulate the rates at which the charges are made and the period of the loan or overdraft in respect of which they have been matte. The same would apply to bank service charges: the bank would be obliged to stipulate the various component parts of the bank charges. I should not assume that you pay bank charges on your account, Madam Deputy Speaker, but I am sure that many hon. Members do and that they sometimes merely accept them without bothering to find out the precise detail of those charges.

Mr. Kenneth Hind: Has the hon. Gentleman also considered the penalties that are paid? I am sure that many hon. Members know of businesses which have exceeded their overdraft limits and whose interest rates have shot into the sky. In those circumstances, the proprietor of a small business had not anticipated what would happen and yet he automatically faces the bill. It is important that the public are made aware of that.

Mr. Wallace: I agree with the hon. Gentleman. One of the complaints made by small businesses is that the charges are often applied without notification and can, as a result, push the business above its overdraft limit and into the realm of punitive interest rates.
We must seek a contract between small businesses and the banks, but the uneven negotiating position of the banks and small businesses often stands in the way of such a contract.

Mr. Bermingham: Does the hon. Gentleman agree that another danger is what is known as uncleared effects? The small business man pays into the bank a cheque that he has been given by his supplier—

Mr. Hind: Uncleared funds.

Mr. Bermingham: Yes, uncleared funds, or whatever they may be called. The cheque is as safe as houses because it is often drawn on state bodies and will not bounce. However, cheques take three to five days to clear and a business must pay a penalty during that time. That can materially affect a business's cash flow and ultimately its solvency.

Mr. Wallace: I could not agree more with the hon. Gentleman. That applies to my account and my salary cheque from the Paymaster General. One hopes that such cheques would not bounce and, if they did, we would have worse problems than those relating to small businesses and banks. As the hon. Gentleman says, when cheques are drawn, often on public bodies, and therefore will not be dishonoured, we must seek a way of speeding up the clearing process, especially as the company may draw on the strength of that cheque.
The relationship between small businesses and the banks is skewed because of the difference in their bargaining positions. If competition could encourage good practice, I am sure that it would benefit not only small businesses but the banks. Banks will do what they can to win the account of a large business and there are no doubt ways of offering an attractive package. The same can apply to individual customers. Loyalty to a particular bank is probably not such that if one did not receive a good service one would not switch to another bank or to a building society. If in future building societies and foreign banks were encouraged to enter the business loans market, the clearing banks and their Scottish counterparts might do much more to provide a better service for their small business customers. The Government, who are committed to competition, might wish not only to call in the banks and ask them about their policy with regard to small businesses, but to investigate how banking services for small businesses might be opened up to more competition which would, I believe, be for the greater benefit of all.
Although I believe that much should be done by good practice instigated by the banks themselves and by some contractual understanding and negotiation with the small business sector, if the banks were not prepared to take the initiative, the two modest proposals contained in new clause 35, which provide for the stipulation of a breakdown of bank and interest charges, would perhaps encourage them along the way. There would be resistance from the banks, but every other business is expected to give details when invoicing customers, so it is not unreasonable to expect banks to do the same.
Another issue raised by the hon. Member for Islington, South and Finsbury, and which is the subject of a new clause tabled by the hon. Member for Workington (Mr. Campbell-Savours), is the Bank of Credit and Commerce International. The hon. Member for Islington, South and Finsbury was right to focus his attention on why rumblings and suspicions were allowed to fester for so long before the Bank of England finally pulled the plug at the expense of many people in the business community—especially the Asian business community—of individual


investors and of a number of local authorities, not least that of the Western Isles which had invested perhaps more than any other authority in BCCI.
The House will be aware that my noble Friend Lord Harris of Greenwich raised the matter in another place in April last year. If one reads the report of that debate, one can say only that the Government's response was stonewalling as a refined art. It was clear that the Government were unwilling to give away what the Bank of England might have made of convictions across the Atlantic, but we can conclude that the Government must have been on notice—the Bank of England was certainly on notice. One wonders why such a state of affairs was allowed to continue for so long before the failure occurred and the plug was pulled, with the consequences of which hon. Members have been given examples over the past week to 10 days.
What sort of help will it be possible to provide to depositors? One amendment that has not been selected argued for an increase in the safety net incorporated in the Banking Act 1987. However, even an increase in that figure from £20,000 to £50,000 would have gone only a small way. It might have been a saving grace for some businesses, but it would have been of only minor assistance to the worst affected.
There is a prima facie case for protection to meet lost deposits. If the Government can say, even at this stage, that they are prepared to raise the compensation ceiling, that would come as welcome news to many.

Ms. Marjorie Mowlam: Is the hon. Gentleman suggesting that increased compensation should be paid by the Government or by the banks?

Mr. Wallace: If there is to be immediate help, I suspect that it would have to come from the Government rather than from the banking sector.
One must consider the effect of those losses on not only the firms immediately involved but the entire small business sector. The initial outlay could well be recouped because of the difficulties that would be prevented from occurring further down the line.
Last Thursday, the Prime Minister said during Question Time:
Local authorities have a duty of care over the funds entrusted to them".—[Official Report, 11 July 1991; Vol, 194, column 1082.]
The Prime Minister is not a lawyer, but the phrase "a duty of care" implies a certain relationship. One wonders whether local authorities have a duty of care to their poll tax payers. If no Government assistance is forthcoming, poll tax payers may have grounds for legal action against their local authorities, and have a right to pursue through the courts the argument that they are not obliged to pay any increase in poll tax that is a consequence of local authority financial negligence. The phrase "a duty of care" was an interesting one for the Prime Minister to use, and perhaps the Economic Secretary can enlighten the House as to what was in the Prime Minister's mind when he uttered it.
Returning to new clause 35, let me say that the small business sector has a tremendous contribution to make to the economy. Over the past two or three years, it has been prevented from doing so by high interest rates, and for even longer by a banking sector that is not particularly

well attuned to the needs and expectations of small firms. If the Government would make a positive response to some of the suggestions that are made today—many of which would not require legislation—that would show the way forward, and would be of considerable encouragement to small businesses.

Mr. Nigel Forman: The hon. Members for Islington, South and Finsbury (Mr. Smith) and for Orkney and Shetland (Mr. Wallace) make a sympathetic argument. Hon. Members in all parts of the House are concerned about the current plight of small businesses and have considerable sympathy with them—so one starts with a favourable disposition towards the proposed new clauses. However, on closer examination one discovers that new clause 3 in particular contains much that is not sensible—which leads one to believe that the amendments ought not to be supported in the Lobby.
New clause 3 makes at least two references to
the average interest rate charged
in respect of various categories of borrowing, which is not a sensible concept. That would give the House and the country only a rough idea of what was happening, and would be comparatively meaningless information in trying to monitor the terms and conditions of such loans.
The range of obligations imposed by new clause 3 implies a considerable burden of compliance costs on banks and other lenders in providing such information, and that would be at the expense of shareholders or customers, or both.
Subsection (1)(v) introduces a provision which a future Government of a different disposition and attitude towards banks and other financial institutions could use as a trojan horse in placing on banks and other financial institutions burdens far greater than could legitimately be justified. For those technical reasons, I find myself unable to support the new clause.
That does not take away from the concern that lies behind the arguments made by the hon. Members for Islington, South and Finsbury and for Orkney and Shetland, which is common to both sides of the House. There can be no doubting that the interest rates recently charged on loans, especially to small businesses, have been penal. Some might describe them almost as usury. The banks argue, justifiably, that the interest charged must relate to the risk involved in each case. However, it is not always easy for small businesses to understand or to accept that rationale.
One must acknowledge also that the banks themselves have been in some difficulty. That is recognised by the media and by the public. Banks have been understandably anxious to restore their balance sheets, and that has often been done at the expense of their clients—notably, their small business clients. The wide spread of interest rates charged to different borrowers should be more fully explained. To that extent, I have considerable sympathy with the argument of the hon. Member for Orkney and Shetland, that more timely information on the charges levied, and on the other terms and conditions insisted upon, would be useful. The best way to achieve that is, as the hon. Gentleman said, by good banking practice—spurred on by the power of publicity, which is to some extent enhanced by debates in the House.
When my hon. Friend the Economic Secretary replies, I hope that he will be able to tell the House the outcome of the discussions between my right hon. Friend the


Chancellor of the Exchequer and the managements of our leading banks, which I hope will serve to point the way to better and more responsible banking practices.
According to many small firms in my constituency, almost a greater problem than varying interest rates and the other terms and conditions on which loans are made is the late payment of large bills by major customers—which is sometimes deliberate, but often accidental. Delayed settlement and a change of policy in respect of payments to small firms can completely ruin their cash flow. I hope that my hon. Friend the Economic Secretary and his Treasury colleagues will reconsider adopting some of the measures used in other countries to encourage the earlier payment of bills to small businesses.

Mr. Nelson: My hon. Friend the Member for Carshalton and Wallington (Mr. Forman) may be aware that our hon. Friend the Member for East Hampshire, (Mr. Mates) introduced some time ago a private Member's Bill that sought to overcome the problem of overdue settlement, but that it received precious little support from the Department of Trade and Industry— despite the fact that many of us emphasised, long before delayed payment became a real problem, that something ought to be done. Ministers appeared reluctant to do anything at that time, but I urge them to reconsider that aspect, and I ask my hon. Friend the Economic Secretary to answer that point when he winds up.

Mr. Forman: I would expect my hon. Friend to endorse the thrust of my argument. It is time that Ministers gave us a full explanation of why they do not think it appropriate to act now.
I have much less sympathy with new clause 37. The hon. Member for Islington, South and Finsbury said that the depositors' protection scheme was markedly less generous than the investors' protection scheme, and that it should therefore be made more generous. Surely, however, the extra money could come only from either the banks or the taxpayer. I was interested by the challenge offered to the hon. Member for Orkney and Shetland; I do not believe that any more should be taken from the taxpayer. It has been asked why the Bank of England did not intervene earlier. The critical point is, in my view, the problem of balance alluded to by my hon. Friend the Member for Chichester (Mr. Nelson).
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Ministers should consider two other points. First, those who deposit their funds with such institutions as BCCI and Barlow Clowes should realise that a greater return probably implies a greater risk. That should be stamped on every such venture. Secondly, depositors should be wary of advice that comes not independently, from people who charge a straightforward fee, but from people who are on commission. It is well known that larger-than-average commissions were earned by those whose advice favoured BCCI. Advice that comes on commission should be regarded with some suspicion.

Mr. Latham: Will my hon. Friend give way?

Mr. Forman: I hope that my hon. Friend will forgive me if I do not. I want to be brief.
Obviously, much more will be said about the auditors, and I shall not say much about them now. At present, auditors have the right to draw the attention of the supervisors and regulatory agencies to any shortcomings

that could amount to fraud in certain circumstances, but no duty is imposed on them to do so. Ministers should take that into account when considering any changes in the law.
I appreciate the problems of small businesses, but I do not think that new clause 3 would solve them. Everyone should be extremely careful not to become involved in circumstances such as those that gave rise to the tragedy of BCCI.

Mr. Campbell-Savours: New clause 37 combines self-regulation with political accountability, and establishes an early-warning system to operate when banks are experiencing difficulties. Its objective is to construct a balance between the need for investors to be given some information about the nature and development of inquiries into the affairs of banks, and the need to avoid unforeseeable outflows of capital—otherwise known as "runs on the bank".
The idea was prompted by the comments of Ian Brindle, a senior partner at Price Waterhouse, in the Financial Times last week. When asked why BCCI accounts had not been qualified more promptly, Mr. Brindle replied:
You simply cannot go round qualifying the accounts of a bank without creating all sorts of problems and without the whole thing collapsing.
Unpalatable though they may appear at first glimpse, Mr. Brindle's remarks contain a grain of truth. What action can we take? We have a duty to maintain confidence in the banking system, as it oils the wheels of industry; but we must have a well-supervised banking system. I appeal to treasurers and institutional depositors who are considering pulling out of the secondary and fringe banking sectors to think twice before they do so. A quick pull-out could wipe out a sizeable part of Britain's small-business industrial base, doing immeasurable harm in regions such as mine.
Responsible institutional investors should do their homework before taking any precipitate action. They should check with their financial advisers and with sectoral advisory bodies, and perhaps collectively approach the Bank of England. They must not aggravate the current difficult situation.

Mr. Anthony Beaumont-Dark: Is there not a paradox in what the hon. Gentleman is saying? Local authorities' money should never be put at risk in any way: it is not their own money to invest in schemes that will earn interest. Some extra risk must be incurred by those who invest in the smaller, marginal banks, rather than in A or B banks. Why should community charge payers' money be endangered? The hon. Gentleman cannot have it both ways; either local authorities take a risk, or they do not.

Mr. Campbell-Savours: The small banking sector plays an important part in the funding of British industry, and it cannot be written off. The question is, what constitutes a risk? I shall deal with that later.
Pending reform of the Bank of England's supervisory arrangements, which should follow any inquiry such as that called for by my hon. Friends the Members for Dunfermline, East (Mr. Brown) and for Derby, South (Mrs. Beckett), we must maintain confidence in the banking system as it exists today, warts and all. My new clause would establish an early-warning system: it would require a bank to publish, within one month of its


accounting period, information about inquiries that have been, or are being, made into its affairs or those of an associate by the relevant supervisory or regulatory authorities.
Such a disclosure could be avoided only if the bank could convince the supervisory authority that, for whatever reason, it should not be made—or that a full disclosure should not be made. If it succeeded in persuading the authority that no disclosure should be made, the authority would have to inform the Chancellor of the Exchequer of its decision.
In the spirit of self-regulation, banks would have a real incentive to keep their affairs squeaky-clean. Not to do so would invite inquiry on the part of the relevant supervisory authority, and possibly require a public statement. The supervisory authority, recognising the critical nature of its decision to approve— or not approve—publication, would have to balance the need-to-know requirements of the discerning investor with the publicity that such a disclosure might engender. Furthermore, the authority, aware of the procedure triggering notification of the Chancellor, would be extremely sensitive to the political embarrassment that would arise if a decision to approve non-disclosure was followed by a collapse, as happened with BCCI.
The Chancellor would not be empowered to instruct the supervisory authority about disclosure or non-disclosure decisions. Nevertheless, he would be able to exert considerable pressure beyond assuming a supervisory responsibility himself. The fact that a Chancellor might at some stage have to stand at the Dispatch Box, held accountable to Parliament and the country, would certainly concentrate his or her mind on the decision being taken by the supervisory authority. I believe that the Chancellor would demand assurances that the most detailed inquiries were being undertaken into a bank's affairs before he would be prepared to sit back and let matters take their course under the cloak of confidentiality.
I want now to consider the question of adverse publicity that would arise where a bank had been obliged to issue a statement. The supervisory authorities are frequently called in to query the affairs of the banking community. To some extent, that frequency would insulate banks from the danger of a precipitate run and collapse. Rumours surrounding BCCI seem to have contributed little to undermining the credibility of and confidence in that bank. That is why the treasurers of local authorities continued to invest in it. The heavy hand of the Bank of England announcement triggered the bank's closure and, in other conditions, that could have led to a run on the bank.

Ms. Mowlam: My hon. Friend has referred to the attitude of local authorities and I invite him to comment on the minutes of a Treasury meeting of the committee of local authority borrowing. Back on 10 May, before BCCI issues were raised, the local authorities raised three points with the Treasury in which they were particularly interested. Their first point related to Chancery which was still on the Bank of England's authorised list. The local authorities raised the issue of the list of approved bodies on which Chancery still appeared. They said:
If authorised banks were unsound, the list should carry a health warning.

The local authorities asked for that back in May. In addition—

Madam Deputy Speaker (Miss Betty Boothroyd): Order. The hon. Lady is making an intervention, not a speech.

Mr. Campbell-Savours: The health warning to which my hon. Friend refers is embodied in my new clause in so far as I provide for an early-warning system.
I believe that the disclosure procedure that I have outlined, in so far as a number of banks might be required to use it and where such inquiries are under way, would act as no more than a signal to depositors that they should be alert and sensitive to a bank's affairs. The effects would be no more undermining than the rumouring in the City in recent months about BCCI's affairs. However, it would enable institutional depositors such as local authorities to enjoy the benefits of what has hitherto been insider information available only to those who are more informed in the City.

Mr. Dick Douglas: The House is indebted to the hon. Member for Workington (Mr. Campbell-Savours) for proposing his new clause. Why should local authorities be in a privileged position over and above other investors in the hon. Gentleman's scheme of things?

Mr. Campbell-Savours: Local authorities would not be in a privileged position. When the bank made a statement one month after the end of its accounting period, that would be a public statement to which anyone would have access.
I want now to consider BCCI's affairs and my knowledge of the events and to pose a number of questions which the Government should answer. My authority of Allerdale was the first authority in the United Kingdom to reveal that it had lost £1 million. That arose as a result of a policy decision taken by the Labour-controlled council when it was elected in May this year. It decided that at every stage, and whatever the matter, it would pursue a policy of full disclosure in the spirit of freedom of information legislation at local authority level. I pay tribute to my local authority for deciding to announce what happened in the way that it did.
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The Government claim that the list of which I have a copy is not an authorised list. Hon. Members should note the size of the list which contains the names of all the banks that are authorised deposit-taking institutions and banks within the United Kingdom under the terms of the Banking Act 1987. The banks says that the list is only a list of authorised institutions. If that is the case, why are Chancery and Edington on that list when one of them went into liquidation earlier this year and the other is the subject of an administration order? Why were they on that list when my authority received a copy of that list on 28 June this year, two days after the Government had been informed in the Price Waterhouse report—

Mr. Sumberg: Will the hon. Gentleman give way?

Mr. Campbell-Savours: No, I do not intend to give way again. Why did my authority receive a copy of that list two days after the Government had been informed formally of fraud in the bank?
I want the Government also to comment on a statutory instrument which I managed to dig out last week entitled the Local Authorities (Capital Finance)(Approved Investments) Regulations 1990. I draw those regulations to the attention of the House because the Department of the Environment has insisted repeatedly in press briefings that in no way was it approving the investments of local authorities. According to the explanatory note,
These regulations contain a list of investments which are approved by the Secretary of State".
Under 2 it states
the following investments are approved".
Under 2(b) it states
any deposit made with an authorised institution or Bank of England
and it defines deposit as having
the same meaning as in the Banking Act 1987.
Having received a letter a week and a half ago which referred to a revised list, having received the list to which I have just referred, and knowing of the existence of the regulations to which I have just referred, local authorities believed that they were acting with the approval of the Bank of England and with the approval—

Mr. Sumberg: Will the hon. Gentleman give way now?

Mr. Campbell-Savours: I have no intention of giving way to the hon. Gentleman. Judging from his ill-conceived comments at the beginning of this debate when the revelations were first made public and his comments about Bury metropolitan district council, comments of which he should be deeply ashamed, he should make a point later of apologising to his local authority.

Mr. Sumberg: On a point of order, Madam Deputy Speaker.

Madam Deputy Speaker: I have the impression that the hon. Gentleman's point of order is not a point of order for me but a point of frustration. I will try to call him later.

Mr. Sumberg: rose—

Mr. Campbell-Savours: It is not a point of order.

Madam Deputy Speaker: Well, if it is a point of order to me, I must hear it.

Mr. Sumberg: On a point of order, Madam Deputy Speaker, is it in order for the hon. Member for Workington (Mr. Campbell-Savours) to make comments about my conduct in this matter and then to refuse to give way? Is that not a disgraceful way to behave?

Madam Deputy Speaker: Order. It is for the hon. Member who has the Floor to decide whether to give way. I will do my best to ensure that the hon. Member for Bury, South (Mr. Sumberg) is called later.

Mr. Campbell-Savours: I want now to consider why local authorities invested in the way that they did. First, they were given assurances that the bank was being restructured. Secondly, they were given assurances that a major cash injection into the bank had taken place. Thirdly, the terms offered by the bank were special not only with respect to the premium interest rate on deposit accounts, but they provided an arrangement under which local authorities could put their money into the bank overnight and draw it out in the morning. A call arrangement existed at that bank which, I am told, is not generally available in all the institutions. The fourth

reason was that BCCI was on the banking list that the local authorities regarded as approving investment. Fifthly, the local authorities justify their actions on the basis of the regulations to which I referred.
I want to ask Ministers about the role of the brokers. If we cannot have an answer today, I should like to think that we can have an answer within the next couple of weeks. Were the brokers paid inflated commissions? Do Ministers know the answer to the question? Have they set out to establish the truth? If the brokers were paid inflated commissions, do Ministers believe that the size of those inflated commissions should have been revealed to the local authorities that were placing such large sums on deposit? What is the role of the Sterling Brokers Association which was drawn in over the Chancery affair? To what extent are the recommendations or statements that it makes to be taken seriously by local authorities? Will the Bank of England carry out its own inquiry into the actions of the money brokers involved in the affair?
I understand that BCCI purchased insurance from a Pakistani insurance company based in Karachi called Adamjee Insurance. To some extent, that insurance should cover losses. I ask the Minister whether it is effective. We are told that the policies that were taken out with Adamjee were reinsured on the London market through a subsidiary of Commercial Union—British and European—and were also reinsured in Italy through the Company Generali. May we also be told what were the links between BCCI and the life assurance London-based holding company CCL? I understand that CCL had money on deposit with the bank. It is a life assurance company. Will the collapse of BCCI affect the liquidity of CCL? Policy holders would like to know the answer to that question.
May we also be told about the position of Westminster city council? The treasurer there has drawn a distinction between lending and placing money on deposit. I am unable to understand the distinction.
May we also be told about the status of the Bank of England in the affair? Mr. Ian Brindle of Price Waterhouse has said that the Bank of England was repeatedly informed of irregularities. There must be a stage in the unwinding of the whole affair at which the substance of the reports—I understand that there were 10—from Price Waterhouse to the Bank of England is made public and certainly at which it is made available to the Government so that we can hold Ministers accountable at the Dispatch Box on those matters.
Did the Bank of England ask Ernst and Whinney why it gave up its £2 million lucrative BCCI auditing contract in 1988? That is an important question. Had Ernst and Whinney found evidence of fraud which it felt that it did not want to reveal by qualifying the accounts? Perhaps it gave up the auditing contract to place on its successor. Price Waterhouse, the responsibility for qualifying. Did Ernst and Whinney tell Price Waterhouse why it gave up the contract? Is it true that Sheikh Zayed Bin Sultan al-Nahayan sent £375 million to the bank only two weeks ago? Is it true that Ghanem Al Mazrui, the secretary general of the Abu Dhabi investors' authority, offered to invest £2·3 billion in the bank immediately prior to its collapse? If that is true, is it fair to say that the bank was trading insolvent?
May we have an assurance from the Dispatch Box that none of the 10 Price Waterhouse reports warranted earlier intervention? I am sure that Ministers have had access to the reports—at least, I hope that they have—so may we


have that assurance today? A BCCI director has said that Price Waterhouse was informed as early as 1988 of fraud in the bank and he says that his evidence for that is that Price Waterhouse was asking questions about fraud at that time.
May we have assurances about deeds held in the bank as security against mortgages? May we have an assurance that those who have mortgaged their properties will receive back their deeds? Furthermore, should mortgagees be paying money to the bank now? They need to know the answer.
Another question has been raised with me repeatedly, although I have no evidence in connection with it. Did the Foreign Office press for a delay in the appointment of Price Waterhouse? It may have pressed for a delay in the appointment of Price Waterhouse to carry out the inquiry into fraud until after the Gulf war had ended. I ask the Minister whether that is true; if it is not, I am sure that he can give the House assurances.
What is the position of local authorities affected by what has happened? They have few options open to them, although I will outline some. Some local authorities will have to sell assets to cover their losses. Some local authorities will use reserves, if they are available, to overcome the immediate funding crises. In some local authorities, a higher poll tax may be levied. I hope that that is not the case because it would have a severe effect on much of our community. The Government may decide to increase the borrowing limits of local authorities to help them to supplement their losses. Who should pay the servicing costs of those borrowings? I have no answer to that and I remain strictly neutral. It will have to be either the Government or the local authorities. In my local authority, if my local poll tax payers have to pay off the £1 million debt which has been incurred as a result of what I can only regard as negligence on behalf of the Government and of the Bank of England authorities, they will pay £3 a year extra in poll tax for the next 10 years, if the loan extends over a 10-year period.

Mr. Nelson: The hon. Member for Workington (Mr. Campbell-Savours) does a service to the House in raising these matters and in tabling new clause 37. I oppose the new clause for reasons that I shall adduce, but I believe that his questions and the respect that he has paid to the integrity and security of the banking system in our economy are well made, responsible and worthy of the House.
I shall confine my remarks almost exclusively to new clause 37. My hon. Friend the Member for Carshalton and Wallington (Mr. Forman) dealt extremely well with new clause 3, although I pay respect to the hon. Member for Islington, South and Finsbury (Mr. Smith) who raised a number of important points about small businesses.
I do not share the view of the hon. Member for Workington that his new clause is timely or worth while. Far from showing that the system of regulating our banks has been brought into question, this latest episode, tragic, hurtful and loss-making as it is for many individuals, has shown that that system is actually working and that the Banking Act 1987, which was introduced to redress the inadequacies in the supervision of our banking system, is also working, because it is bringing to book and closing down banking businesses that are acting fraudulently.
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The question that the House is addressing—not, I hope, in an unduly party political fashion—is when one should blow the whistle. Does one blow the whistle too soon and risk a run on the banks and bringing into question confidence in our entire banking system, or does one blow the whistle too late and jeopardise the deposits and interests of many people which otherwise might have been saved? If the whistle had been blown a year ago, many individuals would have lost out then, just as many have lost out now. On the other hand, many individuals have been saved because it happened a year later.
It is important for the House, which talks incessantly about accountability, to be sure that when we call people to account we can do so with justification. How can we ask the Bank of England to close down an authorised bank, a private enterprise or a company unless there are sound reasons for taking such action so that we can then hold it accountable? If the Bank of England were to take such action on the basis of suspicion, and if either the House or one of its Select Committees brought that into question how could we pillory the Bank for taking such action peremptorily?
In my judgment, and in so far as I observe these matters, it appears that the Governor of the Bank of England and the department of banking supervision at the Bank of England have behaved in an exemplary and wholly proper fashion in this matter, as have the Government of the day—

Mr. Greville Janner: Does the hon. Gentleman consider that, as part of behaving in an exemplary fashion, the Governor of the Bank of England owed any—and, if so, what—duty to pass on his suspicions to the Government of the day, and did the Government of the day have any—and, if so, what—duty to investigate those suspicions?

Mr. Nelson: The Banking Act 1987 deals clearly with those matters. The important matter to which the hon. and learned Gentleman has drawn attention was the subject of an extensive debate when that Bill was in Standing Committee and subsequently when it was considered on Report—

Mr. Janner: What is the answer to the question?

Mr. Nelson: The answer is that the primary responsibility for banking supervision rests with the Governor and with the department of banking supervision at the Bank of England. Undoubtedly, some informal discussion takes place—it is not required by statute—with the Treasury and with Ministers. To stiffen that process and to ensure that decisions would not be taken in a laggardly or neglectful fashion, this House and that Act established a board of banking supervision in the Bank of England, which is quite different from the department of banking supervision at the Bank. I am sorry that this is so esoteric, but it is an important point. To try to ensure greater accountability and greater supervision in our banking system, the House established—[Interruption.] I suggest that this is an answer to the hon. Gentleman's question—a board of banking supervision in the Bank of England to stand alongside the Governor, of which he would be a member, to which he would report, and the composition of which we discussed at length, as I am sure my hon. Friends will agree.
The Bank of Credit and Commerce International has a considerable history beyond the last year of suspicion. Many hon. Members will know that when it was first established in this country its wholesale expansion within a matter of months on some prime sites throughout the capital gave rise to suspicions about the way in which it was financed. When assurances were forthcoming that major depositors from the Gulf states were supporting it, the matter was laid to rest for some time. However, some doubts remained about the bank's ethics, objectives and deposit base.
Until 1987, this country differentiated between major authorised banks that could offer the whole range of banking services and the secondary or fringe banks that were licensed deposit-takers. It was only in 1987 that one category of bank was established—authorised banks. One major problem was that when authorising banking status we could not differentiate between domestic banks and foreign banks with branches in this country. That involved some risk, but there had previously been a risk with the licensed banking system.
The position of BCCI, however, was special, if not unique. To some extent and to some people, it was rather objectionable, because it tried to establish a banking basis that was different from all others. It sought to move beyond the financial facts of life and to talk about "moral profits" and "spiritual growth". It persuaded employees to work overtime for no remuneration at the weekend so that it could pay their moneys elsewhere. It was a crusading bank—a new phenomenon—which was attached to an ethnic background in this country and had an understandable appeal. I do not decry the sentiments behind it, although, in retrospect, we see that it was a scam like many others. In reality, it appears that those "moral profits" were being siphoned off into Grand Cayman and into a so-called charitable foundation that itself had an interest in BCCI. This and other irregularities subsequently brought about the downfall of that bank. The disappearance of significant funds which undermined the security of depositors and customers alike.
Therefore, although one rightly has enormous sympathy with those who, as employees, as well as depositors put their trust in that company, one must conclude that there can be no departure from the financial facts of life. Cardinal rules are that one should look at the spread of assets and liabilities of a banking organisation. One has to trust to the authorisation of the regulatory system and one should ensure that, when it comes to investing money, one does not put all one's eggs in one basket.
The United Arab Emirates and Sheikh Zayed al-Nahayan have behaved completely honourably. They may have been ripped off by Mr. Abedi. Time and time again, the sheikh has been asked to pay up to that bank. Let it not be forgotten that he donated generously and willingly to our country when we came to the aid of the Gulf militarily. He, personally, has behaved generously and honourably. I believe that, up to a certain level, he may yet be prepared to act again in that way towards the bank's non-sterling depositors. However, why should we limit our own liability and yet call upon him to idernnify without limit all others who have lost in this case? He may do more, but he has behaved entirely properly and we should be grateful for the role that he has played in stabilising the international banking system.
The hon. Member for Islington, South and Finsbury asked why there should be a differentiation between the depositor protection scheme that operates for the banking system and the investor protection scheme that operates in the financial services industry. There is a difference between liquid money and any equity investment. It is fair enough for the House to decide—as it did—that those who invest in banks shall be indemnified up to a certain level to try to protect the small depositors who may not have the benefit of reading the Financial Times every day and who cannot be expected to know which bank might be dodgy.
In 1987 we set that limit at £20,000 and for the time being decided that 75 per cent. of that should be the limit of the amount against which any individual depositor could be indemnified. So the sum was £15,000. That was not unreasonable at the time and it is not unreasonable now. It could perhaps be increased to £20,000, but it should not be increased to significantly more than that.
However, in the case of equity investments, the financial services industry and the vast range of organisations that operate as authorised businesses under a variety of recognised professional bodies and self-regulating organisations, people are probably entitled to greater recompense and security. But let us never forget one important factor. In both cases, it is not the taxpayer who indemnifies or guarantees the investor. It is not us or those whom we represent who pay depositors or loss" makers in the banking or investment sectors. It is the rest of the banking industry which, under the depositors' protection scheme, have to pay up or, under the Financial Services Act 1986, as authorised investment businesses have to pay into compensation funds.
If the House took a decision significantly to increase the amount of compensation made available to depositors, the cost would fall on the banks and their customers rather than our constituents. Therefore, it is a decision about which we should be careful—

Mr. Paul Boateng: People would pay higher bank charges.

Mr. Nelson: Well, it would cost the rest of the industry money. Let us take the banking sector as an example. If we raised the compensation under the scheme from £15,000 to, say, £50,000 or £100,000, on whom would the cost fall? It would fall not on the taxpayer or the Government but on the banks and their customers. Let us consider for a moment the consequences of that, not only the benefits for unlucky depositors. Let us consider the principle of the matter.
Surely the reputable, the conservative, the trusty and the responsible banks and financial service companies would end up indemnifying the least responsible, riskiest and fraudulent businesses in the same industry. The banks may well be prepared to cover that to a certain extent. So they should, because things can go wrong and there are bad apples in every tray. However, there must be a limit to the extent to which we can ask any bank or investment business to provide massive subvention to cover the losses of people who seek to take business away from them. It is true that banking is a market, that it is competitive and that there will be good as well as bad. However, it is impossible to create a failsafe system in which no one loses.
If bad decisions are made and if fraud takes place, someone must carry the loss. This House and the relevant industries can go too far in indeminifying people. At the


end of the day, we as well as the industries must send out the firm message, "Depositors beware. Investors beware. Nothing that this House can do can indemnify you against the possibility of loss. We will do our best to authorise institutions and ensure that fit and proper persons run them, but you must balance and cover your risks, and make your own judgment about with whom you invest."
I have sought strenuously today and on previous occasions to defend, indeed strongly to back, what the Governor of the Bank of England and the Government have done in this matter. Their action was absolutely responsible and right. As far as I can assess, their timing was wholly right.
However, I wish to make one point that I have made previously. It could be the answer to this difficulty. I urge the Government to listen to what I say, because I am sure that it will attract support from hon. Members on both sides of the House. There is a way of improving significantly the protection of depositors, investors and shareholders in businesses. It is called audit committees. Sir Brandon Rhys Williams, a former Member of the House, campaigned for years for the boards of companies to have a sufficient number of independent non-executives who would be forced by statute to form a cabal in order to ask difficult questions of the board and, in particular, sometimes of an autocratic chairman of a company. They could ask questions about extensive loans, faulty security for loans and the spread of risks. At the annual meeting of shareholders they could stand up and say what they had or had not asked during the year and what they received or did not receive by way of a reply.
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I challenge anyone to suggest that in the cases of Blue Arrow, Johnson Matthey, BCCI or virtually any other collapse in the past 10 years a stronger, more independent, forthright audit committee of non-executive directors could not have saved many ordinary people from losing out.

Mr. Beaumont-Dark: Although my hon. Friend's idea sounds good, is not there a flaw in it? BCCI had worldwide ramifications and hundreds of thousands of customers. Would not his idea end up with non-executive directors who were almost full-time directors and a large staff to serve them? My hon. Friend's idea sounds good, but I do not believe that it would work in practice.

Mr. Nelson: I understand my hon. Friend's intervention and the motives behind it. International companies have a better reputation than us for appointing non-executive directors and audit committees. They do not seem to have the apocalyptic scandals and collapses that we have from time to time. Where such committees exist in Britain and elsewhere they seem to have an extremely good record of looking after shareholders' funds, as well as the security of depositors and employers.
It is extraordinary to hear from the Opposition Benches calls which seem to be for the bailing out of an offshore banking organisation and for people to be defended from losses which they should be expected to incur. Often they are big enough to incur such losses and sufficiently wise to make their own judgments.
My right hon. Friend the Prime Minister was absolutely right to come to the House last week and say that local

authorities that, for a marginal increase in the interest rate which they could obtain on deposits, decided to hold 100 per cent. of the value of the capital at risk could not be indemnified at public expense. It is not the job of the House or the Government to underwrite every local authority treasurer who runs amok. One can only question the motives of treasurers who put enormous sums of money—millions of pounds of local communities' money—into banks which were previously licensed deposit takers and were long regarded as dubious. It is extraordinary that such decisions were made with the public's money.
The Prime Minister and the Government were absolutely right to say that there was a limit to our competence and the extent to which the taxpayer can bail banks or local authorities out. That is why I hope that the Government will take a reluctant and resistant attitude to the new clause.

Mr. Robert Sheldon: The hon. Member for Chichester (Mr. Nelson) should be careful that he does not go too far. Contrary to the views of the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), the smaller banks have a role. If we end up with everyone putting their money into the top four banks, it would play the devil with the City of London.
Like the hon. Member for Chichester, I intend to speak mainly to new clause 37, for which we are grateful to my hon. Friend the Member for Workington (Mr. Campbell-Savours). Not only is it a good new clause but he made a fine speech. However, first, I wish to comment briefly on new clause 35.
The charges that banks impose on their customers are an outrage. The first a customer knows that he is being charged anything is when the statement shows a deduction. That is a scandal. If I buy anything or incur any cost, I expect, first, an invoice, and, secondly, the details of what I have purchased, giving me the cost of each item. Then I pay after a certain time. All right, the banks are paid a bit quicker, but they give no detailed information of any kind. It is an outrage that we have got used to. I have had discussions with the chairmen of the main banks who all accept that and say, "Yes, eventually we must move in that direction." I say, "Not in that direction; we must give an itemised list of what the charges are for and some justification for them."
The Banking Act 1979 was the first legislation to lay responsibility on the Bank of England for granting a licence to a bank to take money from depositors. Section 3(3)(b) states:
the Bank shall not grant a full licence to an institution unless it is satisfied that the criteria in Part II of that Schedule are fulfilled with respect to the institution.
The said schedule 2 states that a licence shall be granted if
the institution enjoys, and has for a reasonable period of time enjoyed, a high reputation and standing in the financial community.
Nobody could ever have said that the BCCI ever qualified in that respect. Right from the start—this is not something new; we all knew it at the time—it was astonishing that the Bank of England accepted that the BCCI was a responsible institution and gave it power to expand all over London. It was a scandal.
That having been done, it is clear from the debate of 23 November that it was understood that the Bank of England would supervise the activities of such banks. When the hon. Member for East Lindsey (Sir P. Tapsell) asked about that, he was assured that everything would be


all right because the Bank of England would be supervising the banks. That allayed some of our doubts. We knew that the BCCI had been given these powers, but we were reassured by the supervisory role of the Bank of England. Moreover, as the BCCI was such a fraudulent concern—it was fraudulent in so many ways—we assumed that the Bank of England would watch carefully over all its activities. The Bank of England failed to carry out that elementary, continuing supervision. That was the burden on the Bank of England which it should have carried.
It is almost insulting to talk about all the treasurers of local councils and all the business men who were taken in when it was the Bank of England that was taken in. It is insulting to talk about those treasurers, including the treasurer of Westminster city council who is so close to all these events, being so naive, when the one body that was failing in its duty and was being naive was the Bank of England. We should understand that important point.
The Bank of England knew of the bank's actions on the other side of the Atlantic, yet it said nothing to anybody about them. The treasurers of our great local authorities and the business men of some standing assumed that such actions happened elsewhere. If the Bank of England thought that the actions would have these consequences, it should have done something there and then. It had a long period of notice that it was not dealing with ordinary bankers as we have traditionally come to expect them to be; it was dealing with people who were trying to make money for themselves and, at the very least, to bend the rules.
We cannot leave the matter as it stands. We know that the Bank of England had a greater responsibility than it now admits. We see that it is trying to dodge the responsibility that we always assumed and that we were told by Ministers at the time that it had. If the Bank of England is trying to dodge its responsibilities, we need new provisions in a new banking Act.

Sir Ian Stewart: I declare an interest as for most of my working life I have been either a manager or a director of a bank, except when I was a member of the Government. My reasons for wanting to speak in this debate are not so much because of that connection as because in 1978–79 I was the Opposition spokesman on the then Banking Bill and in the last Parliament I was responsible for introducing the Banking Act 1987, which has been much in discussion this afternoon.
I do not want to spend more than a moment on one or two of the issues raised about the relationship between banks and their customers, but I wish to take this opportunity to support the general purpose behind new clause 35. It suggests that banks should state on statements of account to their customers the rates of interest being charged and provide some explanation of bank charges. It is not necessarily time for that to be embodied in statute, but I hope that when my right hon. Friend the Chancellor of the Exchequer meets representatives of the banks shortly he will make it clear that there is a general feeling in the House that banks' customers have grounds for suspicion about how they are being treated by banks merely because such information is not readily available.
I shall give the House one practical example of that. Recently, a person came to me suspecting that the interest charges on an account were excessive. After I made some calculations, it looked as though the rate of interest was several per cent. above any reasonable rate that should

have been charged on that account. I contacted the bank and after a considerable period it was established that the rate of interest had been much too high. It then took a great deal of time to work back over a long period to find out how much the bank had overcharged and to correct it. Had there been a simple statement on any of the statements of account in the interim showing what rate of interest was being charged, it would not have taken so long to resolve the matter. It is in the interests of the banks to avoid the misunderstanding and mistrust that can arise and to be more open with their customers about their charges.
My second point about the relationship between banks and their customers concerns the nature of the list of authorised banks. The very fact that some people can misunderstand the list to be some sort of guarantee of the automatic integrity of the banks listed suggests that some sort of health warning needs to be applied to it. I shall not suggest the form of words. In bare terms the list states that it is a list of the institutions authorised under the Banking Act. It would not come amiss if additional words made it clear that the statement did not go further than the bare words represented. There is no harm in giving people more information, particularly if a shortage of that information can mislead.
My third point about the relationship concerns the vexed question of deposit protection. My hon. Friend the Member for Chichester (Mr. Nelson) has just made a speech about that and I agreed with much of what he said. I must confess that during the passage of the Banking Act I was responsible for trying to prevent the deposit protection arrangement being set at too high a figure, because I believed that if we were not careful a version of Gresham's law would apply to banking. Hon. Members will recall that Gresham's law states that bad money drives out good.
I fear that if deposit protection is too extensive, bad deposits will drive out good. The reason for that is simple and has been dramatically illustrated by events of the past few years in America where deposits of up to $100,000 have been protected up to 100 per cent. Therefore there was no greater risk to the depositor from placing his money with a badly run organisation that paid higher interest rates than there was from placing his money with a well-run organisation that paid lower interest rates. Therefore, in that sense, bad deposits could drive out good.
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The end result of the protection offered in the United States was that the deposit-taking institutions, which are the equivalent of our building societies—the savings and loans institutions—were faced with comprehensive bankruptcy. In order to pay higher and higher rates of interest those institutions had to take on riskier and riskier business until the whole financial sector collapsed. It was beyond that sector to provide any deposit protection and that obligation will fall on the United States' taxpayers. They will have to finance that problem for many years to come.
I caution those who say, for perfectly understandable reasons, that more and more deposit protection should be provided. If one enables depositors to place their money without disadvantage with an institution that is less responsible, one will end up taking serious risks with the banking system as a whole.
The BCCI case has raised a number of serious issues that have been aired this afternoon by a number of hon. Members. The big question that any supervisory authority must face is when it should act. When doubts have become apparent about an institution, at what point should the regulatory body move in and take disciplinary action? That will always be a difficult decision, but we must make sure that the necessary framework is available for the regulators to take such action when they deem it right.
From having read the published reports on the BCCI case, I believe that the Bank of England is to be greatly commended for mobilising international agreement at a difficult time on the contentious subject of the cessation of business in BCCI. However, one must ask a more difficult question—was it open to the regulatory authority to do something about the problem in the United Kingdom? It is especially timely to ask that question because we are about to be bound by the second European banking directive, which automatically extends mutual authorisation from one member state in the Community to all the others. I do not want to pick out Luxembourg as being particularly irresponsible, but the BCCI case has demonstrated that the regulatory authority in that country was not in a position to ensure that the worldwide business of a bank as complicated and as extensive as BCCI could be comprehensively and effectively regulated from one centre—let alone the smallest centre in the EC.
Once that second banking directive is implemented we must ask about its implications for branches of banks in countries other than those where those banks are authorised. We do not have long to think about that because the directive is coming in next year. The regulators and my right hon. and hon. Friends at the Treasury will have to think carefully about whether some adjustment must be made to our statute or whether we should propose some changes within the Community to ensure that we do not expose ourselves unwittingly to the risk of further problems with international banks where there is an obligation in this country or any other country to accept the authorisation granted elsewhere on grounds with which we may not be thoroughly satisfied.
I had a most unfortunate experience a few years ago because, in 1985, I was the Treasury Minister who had to look at the affairs of Barlow Clowes. At that time I wrote to the Department of Trade and Industry to say that, in my view, if the answers coming from that body were not entirely satisfactory it would be better to face the unpleasantness of a cessation of business than to risk collapse at any time. Those words were not drafted for me by any official in the Treasury and I wrote them because I felt so strongly. I felt that if one had a badly run company and if one knew that there were serious deficiencies in the way in which its business was conducted, it was likely that fraud would soon take place—if it had not yet taken place—because of the great opportunities to exploit inadequate accounts and a badly-managed business. In the financial sector that temptation is all the greater. Unfortunately, it seemed to me absolutely clear that it was right to close Barlow Clowes at that time. However, there was a natural reluctance on the part of the regulators and supervisors to allow things to be corrected. However, the danger is that by the time one gets sufficiently clear evidence that something is seriously wrong, it is too late to protect the money of investors or depositors. That serious problem has been highlighted again by BCCI.
By the time that one can prove anything, the time to act has probably gone, and yet how can one identify what intermediate action one should take? I commend the hon. Member for Workington (Mr. Campbell-Savours) for his suggestions in new clause 37. I do not necessarily agree with them in the technical sense, as I do not know whether they would achieve the right result, but they certainly point to the crucial issue. How can one take intermediate action when one thinks things may be going wrong, when one does not have absolute proof that would stand up in a court of law?
It was because of my concern about such a problem that I pressed for the inclusion—I use those words carefully—in the Banking Act 1987 of a special provision, now section 12, for restricted authorisation. Under that section the Bank of England could impose conditions on the authorisation of a body about which it was unhappy without going to the length of requiring it to close its doors. At that time there was some resistance to the inclusion of that provision, but I had in mind exactly the sort of circumstances which have now arisen. In other words, a good deal of negative information would have been forthcoming that raised suspicion in the minds of those responsible for the regulatory system. Such information could be made available about any bank, but the fact that, in this case, it related to BCCI made things more difficult because that bank was not controlled directly in this country.
If the regulators are not satisfied with the answers that they are given in a particular country, they should be able to require that bank to incorporate in their own country so that there is an incorporated body that then comes under the direct control of the regulatory authority in the country concerned. If we have to "borrow" the authorisation made in other countries for the sake of our own control, we are never likely to be able to get all the information we need quickly enough about banks which have widespread business throughout the world, and which can move funds rapidly from one centre to another.
If a bank has dedicated capital in this country, an identifiable board of directors and management, and if its affairs can be supervised as intensively as those of any domestic bank, we could be more confident that the international banking system, as applied in this country, would not pose risks for depositors and investors of the kind that we have unfortunately witnessed in the BCCI case.
I believe that there are urgent questions to ask about the way in which anticipatory steps can be taken before we reach the point at which a deposit-taking institution is likely to go bust or to close its doors. I hope that the inclusion of section 12 in the Banking Act 1987 offers a route that could be exploited in such cases. In the fullness of time, I shall be interested to learn whether it was invoked in that case and, if not, why not. Perhaps it was my fault because I did not ensure that the section was drawn up in such a way that it could be implemented in such a case. If so, we should revise the statute. The thinking behind the section covered just the circumstances that have arisen in the case of BCCI, where the supervisors were left with the difficult balance of judgment to which my hon. Friend the Member for Chichester referred. We were not in a position to know all the relevant information because of the world-wide nature of the business concerned.

Mr. Dick Douglas: This has been an interesting debate and I am sure that the whole House is indebted to the hon. Member for Workington (Mr. Campbell-Savours) for tabling new clause 37.
Two former Treasury Ministers have spoken—one on each side of the House. I wonder what advice they would have given to local authorities that said that they were about to invest in the Bank of Credit and Commerce International. It is all very well to be careful and guided on the basis of 20:20 hindsight, but a treasurer of a local authority, especially a small local authority. I see that the hon. Member for Western Isles (Mr. Macdonald) is in his place—would not necessarily ask two former Treasury Ministers for advice, but would ask the Bank of England. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) was perfectly right to say—I hope that I am paraphrasing him correctly—that in this instance the organisation within the British constitution with a duty of care was the Bank of England. Local authority treasurers would have asked the Bank of England what sort of organisation BCCI was, given that it had been authorised to take deposits. The Bank of England has issued a long list—the hon. Member for Workington has trailed that list, of which we all have copies—and BCCI is on it.
Local authority members asking whether they should place such a deposit would be confronted with a treasurer who would consider the list as an indication from the Government's banker of organisations that have been examined and with which deposits can be placed. Although one should not put all one's eggs in one basket, and it is not for me to defend the actions of local authorities, the local authorities' public representatives, who are the custodians of local probity—local councilors were— placed in an extremely difficult position.
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Although new clauses 3, 35 and 37 have been linked on the amendment paper, they are not necessarily linked in reality, except in one sense. The Government have caused much of the difficulty. The Prime Minister speaks of a "duty of care" but the real thrust of the difficulties Faced by the financial sector and small businesses relates to runaway inflation. The former Prime Minister, the right hon. Member for Finchley (Mrs. Thatcher), used to say that inflation was a crime and that it was cheating. That is absolutely true. Small businesses are placed in difficulties by other institutions and organisations because of the high rate of inflation and the fact that money falls in value, especially when inflation is high. That is why small businesses often encounter difficulties when they are waiting for payment from those to whom they supply goods and services. Most large companies find that it is to their advantage to delay payment because the value of money 100 or 200 days later is less than it is at the present time. The higher the rate of inflation, the less that value will be. The Government have a responsibility in terms of duty of care.
I represent a Scottish constituency and the Scottish National party and I want to know what the Government's intentions are in relation to their duty of care. Will they rest on the Prime Minister's argument and say that local authorities should know that if a premium is offered on a rate of interest, the risk is higher and that that should have been taken into consideration by the local

authority treasurers and others? If so, that does not seem to be a safe case, because a health warning should have appeared on the list issued by the Bank of England.
I recall what auditors have done in some of the institutions with which I have been associated, particularly the Co-operative movement. Without wishing to blame Price Waterhouse for all the difficulties, auditors have dodged their responsibilities. Their responsibilities are not simply to protect the shareholders. They have a wider responsibility, and it is not good enough for Price Waterhouse and other companies simply to say that they were investigating the matter and told people about the results of their investigation. I should imagine that if a local authority treasurer looked at the auditors' docket on any of those institutions, he would find that they had used the common accepted phraseology "a true and fair view". Although I would not go as far as saying that we should have an internal audit within a bank or joint stock company, we should examine the role of auditors further.
Enormous difficulties are involved in monitoring financial institutions because of the international electronic transfer of money. What resources do the Treasury and the Bank of England have to get ahead of the game? My knowledge on this matter is limited to the public print, but there seems to have been an enormous swindle going on for many years. It was deeply hidden within the organisation on an international scale. It is extremely difficult to get ahead of that game unless the House, through the Treasury and the Bank of England, has resources such as international collaboration to keep ahead of the game.
I trust that the Treasury will not simply rest on the Prime Minister's words about a duty of care. Local authority councillors and treasurers will have relied on a view expressed through the Government's publications. Therefore, although I do not expect the Government wholly to indemnify local authorities, I hope that, in consultation with local authorities, they will look at the burden that will be placed on poll tax payers within the local authority concerned if the Government wash their hands of that affair.

Mr. Beaumont-Dark: I do not want to say too much about the Bank of England now as I have the honour to sit on the Treasury and Civil Service Select Committee and I am confident that next week we shall be making some inquiries of the Governor himself. It is easy, off the cuff, to say that it must be someone else's fault—that it must be the fault of the Bank of England. It may well be that the Bank of England will prove to have been somewhat at fault.
However, 20 years ago I had the pleasure of being the chairman of the finance committee of the city of Birmingham council. I followed that by being the chairman of West Midlands county council finance committee. All those years ago, we had rules and regulations. The sums that we had available then would amount to hundreds of millions of pounds today. We had rules about the sort of banks with which the money could be lent and the percentages of money that could be lent. If those rules were sensible then, surely they would be sensible today. To say that the county treasurers and finance directors depended, in all their innocence, on the wicked Governor on the hill in the Bank of England is nonsense because all those treasurers are members of the


Chartered Institute of Public Finance and Accountancy, are all qualified public accountants, have all, I hope, been in other jobs before and all know about finance.
I am amazed that speakers in today's debate have used the word "authorised" by the Bank of England as though it were the same word as "guaranteed". It is not in any way. "Authorised" means that the Bank of England or anyone else gives a list; "guaranteed" means that, whatever happens, someone will make a guarantee.
In this country and in America there is a list—the Standard and Poors-Bank rating system—which gives a number of banks. There are two organisations in this country that list banks and their credit worthiness. I am a director and adviser of Touch Remnant, which is only an investment trust, not a great local authority dealing with other people's money. It deals with shareholders' money. At the board meeting every month a list of banks and their credit rating is produced and we discuss whether a million pounds here or there should be lent to such banks.
Are hon. Members trying to tell me that a public official who is paid £60,000 or £70,000 a year should not show the same propriety with public money as other people use with shareholders' money? It is nonsense to talk as though there were some wicked plot. In the case of the Western Isles council, it is either criminal or folly, or both, that someone could lend £23 million—£750 per head of community charge payers' money—to such an irresponsible organisation.

Mr. David Shaw: I take my hon. Friend's point and agree that a number of local authority treasurers may well have made mistakes. I agree that to lend about half the council's total financial resources, as the Western Isles council did, seems to show a high degree of negligence. However, has not my hon. Friend read reports that, apparently, the auditors did not qualify the accounts but insisted only on an amendment to the first note to BCCI accounts, which normally deals with accounting policies and would be the last place anyone would expect to have to pay serious attention to a question mark about the company's financial health? Does not that suggest that there may be something a little wrong, and some treasurers may have been innocently taken in?

Mr. Beaumont-Dark: I rarely come across financial innocence, but I come across incompetence daily. Anyone in his right mind who heard what happened in Florida a few months ago, when Noriega drug money was talked about, who still thinks that a local authority should lend money in that way is incompetent in his job.
I was taught early, as an articled clerk, that one should never borrow long and lend short. That is precisely what some of the highly geared, fringe banks are doing, which is why they get into terrible trouble. Everybody should look not just at the bank balance sheet, but at the quality of the loan book—the rating system is involved when one checks the quality of the loan book.
I shall not say too much about BCCI because that has already been done and I agree with most of the comments. I shall deal with a suggestion that was mentioned last Monday. Many of us know that we cannot expect the ordinary bank depositor, particularly if there is a language problem, totally to understand the system. I am always frightened in foreign banks because I do not speak a

foreign language. Many Asian investors and depositors have money in BCCI and under the bank deposit scheme they will get back 75 per cent., up to a maximum of £15,000, of it.
I hope that we can agree that the Government and the Bank of England could pay out money where deposits can be proved. That would help people in crucial difficulty and the money would then come back through the bank deposit scheme. The only loss involved would be the interest on the money—a small sum when set against the amount of suffering that could be caused. Such a scheme might also provide a saving in unemployment benefit. We could help distressed depositors in the short term in such a way without actually bailing them out. We would not be breaking rules or setting precedents, but would save many people a tremendous amount of the tragic suffering which, to my certain knowledge as a Member of Parliament, exists.

Ms. Mowlam: I shall try to be brief and not repeat the comments of many hon. Members, particularly the long list of questions of my hon. Friend the Member for Workington (Mr. Campbell-Savours). We look forward to answers from the Economic Secretary to those questions.
Much of today's debate has focused on the nature of systemic risk to the banking system. The Opposition have made it clear that they understand the arguments about systemic risk and getting sufficient information to take a case to the Serious Fraud Office with the legal backing and status to make it stick. We also understand the time needed for the Bank of England to put together a sufficient case. There is no disagreement about that.
However, the Opposition believe that fraud at BCCI was possibly ignored for far too long while the importance of avoiding systemic risk to the system was considered paramount. The Economic Secretary must explain that this evening. It would also be helpful if, when responding, he could clarify a number of issues raised in the press. There has been nowhere else to debate the matter during the past four or five days.
First, can the Price Waterhouse report of March 1990 be made public? It seems that the Wall Street Journal has more influence and the American press have better copies of that report than we do on this side of the Atlantic. Secondly, in last Monday's debate the Economic Secretary said that information came to light at the beginning of this year. He referred to a manager in the bank and used the pronoun "she".

The Economic Secretary to the Treasury (Mr. John Maples): I saw the record, and it was a mistake. I do not think that I said "she". I certainly did not mean to imply any gender.

Ms. Mowlam: What information was it that that genderless person, or person of doubtful gender, provided in January of this year? The press seemed to suggest that the Price Waterhouse report of March 1990 was a pretty damning indictment of BCCI. If the Economic Secretary could give the House that sort of information tonight, we would then know whether the Bank of England acted with due diligence or was too tardy in its behaviour. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said, it would be useful to hear about why Ernst and Whinney, now Ernst and Young, switched to Price Waterhouse in 1987–88. That debate between the two big accounting firms has been reported in the press.
The bar protocol of 1983, the international banking settlement, gave the option for a college of regulators to be set up when a banking problem was pan-national. In relation to BCCI, that college was set up in 1987–88. If it was set up in response to the bar protocol of 1983, why did it take so long? If it was not, what was there about BCCI in 1987–88 that led to the setting up of the college of regulators? Such clarification would make a great difference to the debate.
6.30 pm
It would be interesting to know about the keenness of local authorities to get to the bottom of some of the difficulties. As I said in an intervention, the Treasury had a meeting with the committee on local authority borrowing on 10 May this year at the Treasury chambers in Parliament street. The minutes of that meeting show that a representative of the Bank of England, Miss Jean Noble,
commented that the bank had a statutory duty to step in as soon as depositors' funds appeared to be at risk.
I am sure that the Minister will quibble over the word "appeared". The minutes continued:
They acted on the behalf of depositors to minimise losses even though it might take time for depositors to get their funds back.
There is therefore a clear commitment by the Treasury that the bank should step in as soon as depositors' fund are at risk. At that meeting local authorities voiced their concern. The Association of British Counties said:
They worried about the risks for smaller banks' liquidities if local authorities lost confidence in this area of small banking as they switched deposits in larger banks.
We should not blame local authorities if, as a result of the speech by the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), they shift their deposits to mainland banks and cause problems. Local authorities were aware of such problems and asked about them in May.
One issue has not been debated since 5 July. Local authorities, small investors and small businesses had money in BCCI. It is odd to say the least that none of the big clearers had any open exchange trade with BCCI at the time of its closure at 3 pm on 5 July. Why was that? Normally there are open exchange trades of deposits and lending between clearers and secondary banks. There have been no reports of any of the clearers sustaining losses. We can either conclude that the clearers had spoken to the Bank of England some time ago and were well aware of BCCI's problems and were not exposed in the same way as local authorities, or—a more damning indictment, although I am sure that the Minister will clarify the matter—the clearers were tipped off and told to get out by 5 July because there would be a closure and local authorities would be left to stew. I am sure that the Minister will tell us whether some of the clearers got out 18 months ago. If they did, the message that prompted them to do so should have been passed to others in the financial system.
Some Conservative Members spoke about the role of brokers. Does the Treasury intend to look again at the grey code governing brokers and their actions? Is there a need to look at the regulations on brokers or to publish the rates that brokers are paid? It would be useful to know whether the Minister proposes even to look at such matters. A Conservative Member said that auditors should have a duty rather than a right to report fraud or

potential fraud. I put that question last week to the Department of Trade and Industry and was told that the Department had no intention of examining the issue.
As hon. Members have said, we are facing a serious banking crisis and some knock-on questions should be examined. Auditing and the question of duty versus right to report fraud is one of them. The other question relates to qualified reports by accountants on companies. The hon. Member for Dover (Mr. Shaw) nods. He raised that matter. Price Waterhouse is on record as saying that it could not qualify accounts because the whole system would crack up. Surely it is incumbent on the Treasury or the DTI to say that if qualifying will rock the boat the Government will look at an alternative way to send a signal to local authorities and others about problems with accounts. We either change the system and have another flag, another indicator, or say to Price Waterhouse that it has not acted within the present legislation and is at fault. The Minister cannot have it both ways. Either Price Waterhouse has not done the job properly or the Government's legislation is inadequate.
Hon. Members have spoken about the status of the bank list and the hon. Member for Selly Oak said that Opposition Members are arguing that that list should authorise the deposits of local authorities. Even if the hon. Gentleman had been here for the whole of the debate, he would not have heard one Opposition Member argue for that. Local authorities thought that that list had some meaning. Why should they not? The Department of the Environment sent it to them and it had the Department's imprimatur. I do not suggest that the list guarantees deposits, but it indicates which banks are authorised.
Surely the hon. Member for Selly Oak can see that there was confusion and misunderstanding. Local authorities thought that it meant more than the bank thought it meant. Plainly the bank did not think much of it because by June it had not removed from the list Chancery or Edington, although they were in liquidation or administration. As the right hon. Member for Hertfordshire, North (Sir I. Stewart) said, we should look at that again. We should also look at the quality of the advice that the Bank of England gives to local authorities. We are asking only that the quality of information on the list should be examined.
The right hon. Member for Hertfordshire, North raised an issue that has not been mentioned much in the debate or in the press, although it is crucial for the future, and that is the whole question of Europe. In a year there will he a single passport on banking, and banking systems in other countries may not have even the bare necessities of banking regulations that exist in Britain. The Minister must tell us whether he is prepared to support a push for the levelling of banking regulations throughout Europe so that we are not exposed to the weakest link in the European chain.
We must also examine compensation schemes throughout Europe. We do not say that they should all be the same, but there should be convergence and understanding and the present consolidated supervision directive on compensation throughout Europe, which is in the bowels of the Commission, should be brought to light and politically backed so that when we are in the single market we are not faced with banking problems.
My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) spoke about the compensation scheme. Conservative Members tried to portray us as if we


were saying that people should have 100 per cent. protection and that we would then get into the savings and loan position of the United States Government. Not one Opposition Member argued for that. The least that any of us has asked for is an increase in the investment protection scheme so that in real terms it will be at the 1979 level when the £15,000 maximum was set. That maximum was reintroduced in the Banking Act 1987 and the original maximum was set 12 years ago. Surely that should be index linked in line with inflation. That is asking not for 100 per cent. protection but for a basic improvement in the investment compensation scheme.
Small investors and Asian business people in particular have been exposed to great problems. If the Government are committed to small businesses, the least that they can do for small businesses, which are going to the wall as a result of this banking collapse, is to give them a package. They need more than helplines, which are merely a sign of blowing in the wind. The only sensible part of the speech of the hon. Member for Selly Oak was his call for a package. Such a commitment would mean something to people.

Mr. Calum Macdonald: I was not a member of the Committee that examined the Finance Bill, and I speak as a Member who represents a constituency that has been badly affected by the collapse and the crisis.
I was dismayed by the attitudes shown by Conservative Members, which were exemplified in the speech of the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). Labour Members and local authorities are not denying that mistakes and errors were made and that there were misjudgments, but, despite what the hon. Member for Selly Oak said, it has to be remembered that local authorities and their finance divisions are amateurs in the money markets. I do not know what the finance director in Selly Oak is paid. If it is £70,000, that is not the case in the Western Isles. The only people earning that kind of money of whom I know are those who are supposed to be running the Bank of England and looking after the interests of the depositors.
The professionals dealing with the money markets are the Bank of England regulators, who look after the interests of the public. As my hon. Friend the Member for Redcar (Ms. Mowlam) said, brokers who gave advice to local authorities in these matters have some responsibility as well. If it is a matter of surprise and concern that a local authority such as Western Isles placed £23 million in a bank like BCCI, what about the nature of the professional advice received by that local authority, particularly when it now emerges that the local authority expressed to its brokers doubt and concern about the bank? The brokers came all the way to Stornoway to persuade the local authority that BCCI was a legitimate bank and that it was all right to leave the £23 million in the account there.
It is no surprise that people whose day-to-day expertise is that of a director of finance in a local authority have had their fingers burnt in a crisis of this sort. The real surprise, and the cause for concern and dismay, is that the much-vaunted financial professionals in London and in Edinburgh also got their fingers burnt, and that their advice caused local authorities to get their fingers burnt.
There is a contrast between the attitude taken by local authorities in the middle of the crisis and that taken by the regulators, the Government and the brokers involved. In every local authority, there is a searching inquiry as to why

things went wrong and money was lost, nowhere more so than in the Western Isles where there has been an honest admission of error, self-criticism and a determination to put things right so that such mistakes are not made again. However, the professional brokers who advised the local authorities have produced nothing but a stone wall of silence. There has been no hint of self-criticism or admission of failure or an apology for the bad advice that they gave. The Bank of England and the Government have exhibited the same stone wall of silence. It is not good enough for the Government and the Bank of England to wash their hands of the matter and to claim that it is up to the local authorities.
The people who will suffer if that attitude is taken will be the only innocents in this affair—the old folk who rely on home services, the children in schools who rely on continuing levels of expenditure to provide them with an adequate education, and poll tax payers. The impact of these losses will fall on their backs unless the Government take a more positive and constructive attitude. Somebody will have to pick up all the bills for this. Either the receivers of local authority services and poll tax payers will pay for all, or the burden will be shared so that the Government and the general public take on some of it. The Government will have no moral or political credit if they continue stonewalling in the way shown by the Prime Minister last Tuesday and Thursday and by Ministers today.

Ms Diane Abbott: There are several categories of losers from the BCCI collapse, and I believe that this debate has not sufficiently distinguished between them. One of the big losers is the Sheikh of Abu Dhabi. I have read that his father was accustomed to keeping his money in a suitcase under the bed. The present sheikh may wish that he had stuck to that. Another category is local authorities. I do not intend to repeat all that has been said about them, but I shall point out that the finance department of one local authority had the presence of mind, the expertise and the skill to withdraw its money from BCCI—that of the London borough of Lambeth. That borough is much maligned in the Chamber, so I am glad to put that fact on record.
A third category of loser is distinct from the first two categories. It encompasses ordinary small business men and depositors, notably Asian business men and shopkeepers. Conservative Members and those speaking from the Treasury Bench have adopted a sneering tone towards the depositors in BCCI. The hon. Member for Chichester (Mr. Nelson) said that anybody who had put his money into BCCI would need his head examined, and that everybody knew about BCCI. But how were ordinary shopkeepers in Southall, Bradford, east London and Glasgow supposed to know the gossip at City cocktail parties?
Furthermore, those people banked with BCCI not because they wanted a greater return but because BCCI, literally and figuratively, spoke their language. They received what they saw as a more welcoming and supportive service than that offered by the main clearing banks. It was not greed that led Asian small business men to bank with BCCI but the fact that they found it a supportive and understanding environment. Those shopkeepers do not go to the same cocktail parties as the


Economic Secretary or the hon. Member for Chichester. They were in the hands of the supervisory and regulatory authorities. And there is a growing suspicion among commentators and amongst Labour Members that those authorities failed this category of loser.
We have read in the newspapers today that, before this wave of Bank of England and Price Waterhouse investigations, United States regulators had complained about the Bank of England's reluctance to co-operate in investigations on BCCI. Last week, the Economic Secretary said that the Bank of England could not be expected to act on rumour. It cannot be stressed enough that BCCI's problems were not rumours. In 1988, it was indicted in the US for laundering drug money. It was indicted for fraudulently acquiring a US bank. There were well-documented connections with Noriega. Furthermore, as my colleagues have pointed out, Ernst and Young, the bank's former auditors, voluntarily gave up a huge account. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) wondered, did the Bank of England ask why Ernst and Young chose to give up BCCI?
This scandal raises a number of questions, and it is as well to put them on record again. One involves the role of the auditor. Several hon. Members have suggested that, in future, the auditor should have not just the right but the duty to point to fraud. There are questions about the role of the Bank of England and about the powers of the Serious Fraud Office, which can act only on referrals. There have also been questions about the deposit protection scheme and suggestions that it should be raised in line with inflation. Thousands of ordinary, hardworking Asian people throughout the country with small businesses put their trust in BCCI. They believed that if the bank had the support of the Bank of England it was safe to do so. These people have contributed greatly to our economy in extremely difficult times. We believe that they deserve more from the Government than an assumption that they should have known about City gossip.

Mr. Ian McCartney: As the House will know, Wigan metropolitan borough council has been caught up in the demise of the Bank of Credit and Commerce International. Many Conservative Members represent banking, but they seem not to realise the damage that banking can inflict on local authorities by making short-term political attacks upon them. In this instance the local authorities do not, in the main, represent the political party with which banking is associated.
Last year, Wigan metropolitan borough council handled over £400 million, and it will probably handle even more than that this year. The only money that it will lose this year will be what it invested in BCCI, having taken the advice of brokers in the City and the advice contained in circulars submitted to local authorities by the Department of the Environment. Local authority treasurers act with professional integrity and give proper advice to councillors, but on this occasion they have found themselves misled and misinformed.
Only one class of person had the opportunity in the City to receive a nod and a wink or advice in advance about the position of BCCI. Local authorities, people with small businesses and other ordinary depositors are the innocent victims. Conservative Members argue that individuals have a duty of care and must be mindful of that responsibility. In terms of reasonable action, there is the individual depositor and the local authority treasurer who

places moneys in a bank. Do Conservative Members suggest that if a marginally higher rate of interest is paid there must be additional risk? Why is it that every night on television the big four banks and building societies are advertising marginal increases in interest rates to encourage depositors to place their money with them? Is it suggested that anyone who deposits with the big four banks and building societies is running a risk?

Mr. Barry Porter: Will the hon. Gentleman give way?

Mr. McCartney: I think that the hon. Gentleman has been downstairs somewhere looking at his deposits. I shall not give way to him. I normally allow others to intervene in my speeches, but I shall not give way to someone who has come into the Chamber at the tail end of the debate to cat-call hon. Members who are speaking on behalf of their constituents.
Surely it is not being suggested that a marginal increase in the rate of return is a sign that a deposit is less safe than it would be with any of the other 499 banks on the list submitted by the Bank of England. If the list that was prepared by the Treasury and the Bank of England and submitted to local authorities on 28 June was meaningless, why was it ever issued? Why was it not issued along with a letter from the Department of the Environment asking local authority treasurers to set out by return of post the investments made in the previous quarter with the banks on the list? Such a request would show that the Department of the Environment and the Treasury regularly seek information that is based on the banks on the list that is sent to local authorities. It would be reasonable for local authority treasurers to take the view that, on that basis, the risk of placing a deposit with a bank on the list would be minimal.
We are not talking about share speculation, when a share can increase in value or lose value. We are talking about individuals making deposits in a bank that was recognised by the Bank of England as one that was operating effectively, though we know now that it was not. As far back as 1987, shortly after the publication of the Banking Act 1987—section 12 is especially relevant—advice was being given to the Bank of England that showed that the BCCI was operating in a fraudulent manner, or that that could be so. Ernst and Young decided to stop acting for the bank. It decided that it would forgo £2 million a year because it was not prepared to continue with the cover-up of the bank's activities. In March 1990, Price Waterhouse suggested clearly to the Bank of England that there was serious fraud taking place within BCCI. It believed that in the circumstances it was unable to make such a statement in its report.
Individual depositors, local authorities and even finance directors of large private companies have to rely on information that is gained in the public domain when it comes to making deposits. Since 1987, the Bank of England has deliberately conspired to ensure that information that should properly be available in the public domain would not be disclosed. As my hon. Friend the Member for Redcar (Ms. Mowlam) said, that was done to protect the secondary banking system.
New clause 37, in the names of my hon. Friend the Member for Workington (Mr. Campbell-Savours) and others, provides an opportunity to protect the banking system from a bank or a group of banks when information


that is made available in an investigation is found to be incorrect. The new clause would also provide protection for depositors, be they institutional depositors such as local authorities or individuals, such as people running small businesses. If the relevant information is available at an early stage, logical decisions will be made about deposits and the Bank of England will be able to step in to protect depositors.
At the end of the day, the Bank of England is the regulator, and it must be an effective one. Instead, we have seen a failure of regulation. Individuals, many of whom deposited hundreds of thousands of pounds, which was hard earned, have not been protected. As a result, they have seen their businesses fail and their lives have been ruined. Local authorities' trust in the banking system has been undermined. The Government must not underestimate the capacity of institutional depositors, such as local authorities, to remove their deposits from other areas of the secondary banking system, particularly when they are being vilified constantly by Conservative Back-Bench Members. Their integrity is being attacked as their banking practices are criticised.
If the attacks continue, there could be an immediate political response. Institutions could withdraw substantial funds from the secondary banking system, causing further problems for banking and the City. Surely Conservative Back-Bench Members are acting irresponsibly in what is already a crisis. They are making attacks on local authorities in the short term which in the long term will undermine the banking system and the way in which it is operated.

Mr. Roger Stott: The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) has been highly critical of the behaviour of local authority treasurers. Does my hon. Friend agree that under current regulations and legislation local authority treasurers have a duty to maximise the amount of money that is at their disposal? That applies especially to the Wigan authority, which is poll tax capped. It cannot raise any extra money because it is capped, so the borough treasurer, under the relevant reguations, has to maximise the amount of money that is at his disposal. That is precisely what he was doing when he invested in BCCI.

Mr. Beaumont-Dark: It is not true.

7 pm

Mr. McCartney: Will my hon. Friend let me answer the hon. Gentleman who is heckling from a sedentary position? Perhaps he is on your deaf side, Mr. Deputy Speaker.
My hon. Friend said that local authorities have a duty to maximise their funds, and in 1990 the Government introduced capital finance regulations to ensure that that happened. At that time, my right hon. Friend the Leader of the Opposition prayed against the regulations in order to allow the Opposition an opportunity to question the Government about their scope and effect and about whether the list of institutions issued on a quarterly basis by the Bank of England had some validity. However, the Government did not allow a debate and the regulations were put into effect without being publicly scrutinised; thus preventing the Opposition from questioning directly

the consequences and practical effects of regulations which are now operated by local authorities, irrespective of their political colour.
I shall be brief, because many hon. Members may wish to make further contributions to the debate. If the Minister does not respond today, the Government need to respond at the highest level before the House rises for the summer recess. It would be intolerable—if not negligent—if the House did not consider further Government proposals between now and the summer recess but left over the summer not only local authorities, which will cope one way or another, but individuals who are affected by the banking collapse with no idea of what is happening. It will be intolerable if people have no idea whether there will be an investigation, why the failure occurred, no idea of the Government's position or of the decisions taken by the Bank of England and no idea whether the Government are prepared to mount a rescue operation such as that following the Barlow Clowes affair or to accept the necessity of protecting small business people for the sake of jobs and of the long-term future of communities and of protecting individuals who have other forms of deposit with BCCI, including deposits relating to their private dwellings. It is absolutely essential that those people are not left to sit—as it were—sweating until the House resumes in the autumn or until there is a general election and a change of Government—the new Government would never allow such a situation to arise.
Finally, those who are interested in protecting the integrity of the City of London or the banking institutions should look not to Tory bankers, but to the Opposition.

Mr. Bob Cryer: The collapse of the Bank of Credit and Commerce International has raised a number of awkward questions, not least that raised by the Economic Secretary to the Treasury who is now lounging on the Front Bench. If a bank is registered within the Common Market, it apparently has immunity to establish itself in any other member state and to rip off its customers. I do not agree with that and I suspect that many other people would be critical of such a view. It has raised some serious questions about the position of banks within the Common Market and, because of the greater integration proposed by the Government and the move towards 1992, something should be done quickly before it gets worse.
The list issued by the Department of the Environment has been mentioned several times, and rightly so. There is no point in the Department of the Environment sending out a list to seek information about how local authorities are investing their money unless some credibility is given to that list. Although the information was provided by the Bank of England, the list of approved institutions sent out by the Department of the Environment must have carried some weight with local authorities. Moreover, two banks on that list were in grave financial difficulties—and were known to be so—and were near liquidation, and yet they were incorporated in the Department of the Environment's list. There is a legitimate argument for saying that the Government should make a contribution to the local authorities that have been affected since they invested in BCCI because the Government implied that it was safe to invest in that institution. It was merely an indication, but the Government cannot escape the fact that if they issue a list of institutions, it is likely that those


institutions will be taken to be sound in wind and limb. The Government are at fault as far as local authorities are concerned.
I support new clause 37 because many people affected by the collapse are not professional investors. They are small business men and business women who are absorbed in the operation of their company, which arises as a matter of course in small businesses because the managing director is also the major shareholder, or the sole proprietor is also the marketing manager, the planner, the designer and the production engineer all rolled into one. Such people cannot be expected also to be financial experts. The provisions thrown up by the liquidation facilities to protect depositors are inadequate.
A Conservative Member said that it was not for us to pick up the pieces and that people must make their own way. That is arrant nonsense because the community as a whole picks up the pieces. If small businesses or medium-sized businesses—and I use the term "small businesses" in the sense of the Bolton committee report to mean companies employing up to 200 people—go into liquidation because of the collapse of the bank, the community as a whole picks up the pieces through unemployment benefit, income support and other benefits provided by the nation. The community will be called upon to save from abject poverty the people who are thrown out of work. It will not be good on the dole but at least it will not mean abject poverty. Why do riot the Government consider whether they can save some of the small businesses and prevent them from going into liquidation by providing better protection for them and for small deposit holders? I am not suggesting a blanket indemnity—I am stating merely that if a lot of businesses go to the wall, the Government will have to provide support through unemployment benefit.
Another issue is what the Bank of England did. It is amazing that the people on telephone number salaries—such as the Governor of the Bank of England who recently received a 17 per cent. increase—never bear the responsibility when something goes wrong. That is certainly true in this case. Under the front page heading "CIA challenged on BCCI role", the Financial Times makes it clear that the information received from the United States Federal Reserve and the Bank of England about BCCI had been singularly lacking. It states:
Mr. von Raab's complaints about official stonewalling have been echoed—
Mr. von Raab is a former United States commissioner of Customs—
by Mr. Robert Morgenthau, the New York district attorney who for several months has vented his frustration at the lack of co-operation he has received from the US Federal Reserve and the Bank of England.
Why is that so? Why did not the Bank of England co-operate with the United States authorities to ensure proper and adequate scrutiny and information? Was it because the Bank of England wanted to keep the bank alive and dared not provide the information in case the United States authorities pulled the plug in view of the Bank of England's inactivity and in case it was exposed as being less than zealous in the performance of its duties?

Mr. Barry Porter: rose—

Mr. Cryer: I will not give way, because I am sure that everyone wants to hear the Minister's detailed replies to all the points that have been made.
Curiously enough, it appears from a story on the front page of the Financial Times that there has been a degree of fraud even at one of the joint stock banks. Under the headline,
Midland operated secret defence offshoot",
is this report:
A trade finance arm of the Midland Bank, one of whose subsidiaries had secret links with Britain's security services, incurred losses of at least £75 million over the past decade. The losses arose in part from undisclosed fraud at one of the trade offshoot's customers.
It seems that fraud is to be found not only in the secondary bank system, but the Midland. Sir Kit McMahon's reign as chairman of the Midland bank was not exactly distinguished, and apparently he did not know of the existence of that subsidiary. Nevertheless, he left the bank with telephone number compensation. He was described as a marvellous banker, but they still got rid of him. The same has happened with other people—such as the former Prime Minister, the right hon. Member for Finchley (Mrs. Thatcher). The Government put their faith in the Bank of England, but it seems slow and unwieldy, and failed to take action for far too long.
In the case of BCCI's collapse, which affected thousands of people, the Government and the Bank of England were apparently taken by surprise, while auditors turned a blind eye. However, when it was suggested that two trade union officials were not handling comparatively paltry sums of money absolutely properly, there was an outcry. The Government told the certification officer to prosecute Arthur Scargill and Pete Heathfield and to leave no stone unturned. However, they were vindicated on every charge.
There is a stark contrast between the way that National Union of Mineworkers' officials were dragged through court after court, largely at the Government's instigation, and the attitude taken towards BCCI—where fraud was known of by Ministers, Government officials, the Bank of England, and Price Waterhouse. The fear was that if someone made a statement, the whole thing would collapse like a pack of cards. That is why there was so much inactivity for so long.
The Government must take some responsibility for that mess, and it is time that they exercised it in respect of small depositors, small businesses, and local authorities that took the Government's implicit advice. The lesson for anyone is, never trust a single word that the Government say.

Mr. Maples: We are all concerned about the stories we have heard in our own constituencies of the somewhat high-handed and insensitive way—to say the least—that many banks have treated their small business customers. As a result, the Treasury and the banks undertook a study. We are finalising our conclusions. That has taken time, but we expect to make a statement soon. I cannot say now what those conclusions are, but we have found no evidence of collusion, or any suggestion that the major banks are conspiring with one another to treat small businesses in the same way. Certainly most businesses received the 3·5 per cent. cut in the base rate up to last Friday.
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Although there have been many complaints, when one remembers that the banks have 4 million small business customers—about half of which are in credit, and half in debit—they still represent a small overall percentage. Nevertheless, there is clear evidence that some customers


have been treated insensitively, and perhaps even outside the terms of their contractual arrangements with their banks. We will address that problem in any recommendations that we make.
We also found in some instances that what the banks told us was that their policy has not necessarily translated into action at branch level. However, there is a fair amount of competition, and customers can move their accounts. I appreciate that at present, in the middle of a recession, it is probably impossible for a firm to move if it owes money to its bank. However, when that time ends, banks which treated their customers in a high-handed way will suffer for it. One must remember also that the relationship is the subject of a commercial agreement between banks and their small customers.

Mr. McCartney: Is the Government's intervention an indication that the banking ombudsman scheme is a farce and a failure, and has done nothing to protect individual depositors with complaints about their banks or individual branches?

Mr. Maples: As the hon. Gentleman may know, the recent Jack report recommended a code of conduct, and I will deal with that in the context of new clause 35.

Mr. Nigel Griffiths: The Economic Secretary said that central bank policy may not have filtered down to branch level, but that is the very level at which businesses and individuals transact their borrowing. It is at that level that businesses and individuals suffer, if not malpractice, then unfair practices that penalise their interests. What explanation did the banks give in that regard? Why did they allow that breakdown in communications to affect their customers so badly?

Mr. Maples: If that is the impression that the hon. Gentleman gained, I could not have expressed myself very well. I meant to convey the information that we did not always find that that which head offices told us was their policy was happening on the ground. In some cases, activity at branch level did not accord with what the head office thought was happening or intended to happen. We shall draw such instances to the attention of the banks concerned.
New clause 3 would impose huge administrative burdens on banks, for little discernible benefit. Those burdens would inevitably be reflected in higher costs, which would have knock-on effects for the banks.

Mr. Campbell-Savours: Will the Minister give way?

Mr. Maples: I have listened to the debate for three and a half hours. If I am not allowed to respond without an intervention every 45 seconds, we will be here for a very long time. The hon. Gentleman made an extremely long speech.

Mr. Campbell-Savours: I am sorry to press the Economic Secretary, but could it be that the targets set for bank managers are such that the only way that they can be met is by ignoring the advice given by their central offices?

Mr. Maples: It is for the banks concerned to diagnose the causes and decide what to do.
New clause 3 would impose expensive burdens on banks, and there is a likelihood that the added administrative burden of handling loans at higher interest rates might make banks unwilling to lend on riskier

projects, which often involve small companies. Where information is needed, it can readily be gathered by the Government, and I hope that, on reflection, and in view of my following comments on the Jack report, the House will agree that it is not necessary to pursue that clause.
New clause 34 seeks an inquiry into competition. As I said, we have found no evidence of anti-competitive practices. However, as one of his duties, the Director General of Fair Trading constantly keeps an eye out for anti-competitive practices and behaviour. If he were to find any, I am sure that he would act. In the absence of convincing evidence, to undertake a study of the kind proposed would involve unnecessary time and expense. Again, I hope it is felt that enough is being done not to require a statutory inquiry into competition.
I have some sympathy with new clause 35 and the suggestion that bank charges should be more transparent. As the House knows, the Jack report recommended a code of conduct. The banks have published a draft, and expressed willingness to institute a code of conduct.
The banks are thinking again, and are talking constructively to consumer bodies. Although no timetable has been established, we regard the matter as important. If a satisfactory voluntary code is not forthcoming, we shall seriously consider implementing a statutory code: we feel that people are entitled to know how interest and bank charges are calculated.
I hope that those who tabled the new clauses will decide that enough is already being done to make it unnecessary to press them. Several of my hon. Friends spoke about new businesses. I hope that they, and Opposition Members, will forgive me if I do not deal with every point that was raised. I shall try to deal with most of them, but hon. members should let me know if they feel that I have left out anything about small businesses.
I think that the purpose of tabling new clause 37 was to institute a debate about bank regulation and BCCI. The BCCI fraud was complex and sophisticated, and took place within a group that operated in some 65 countries. Several companies sought to arrange the bank's affairs in a way that made it difficult to regulate. For a long time it had two auditors, and the arrangement was difficult to police. All that made the fraud easier to perpetuate than it would have been had the operation been limited to one country. It is not surprising that the auditors were fooled, and that it took a long time to discover the fraud.
We are not discussing whether a banking licence should have been granted. Under the legislation of the 1970s, the bankers were entitled to come to this country and open branches. We are discussing whether the licence should have been revoked earlier. As several of my hon. Friends have pointed out, the position is very difficult. We—or, at least, the Bank of England—should, apparently, have acted earlier; we are being criticised by many Opposition Members for not having done so. According to others, however—given that a restructuring arrangement was being negotiated, and given that the major shareholder had indicated a willingness to invest additional funds—the problems might have been sorted out if the situation had been allowed to continue for longer.
In such circumstances, we always hear the same conflicting arguments. If, however, the Bank of England goes to the extent of revoking a banking licence and applying for a liquidation order against a company, it effectively puts that company out of business. Once the step has been taken, the company cannot possibly be put


back on its feet. When they are in liquidation, a bank's assets nearly always turn out to be worth less than they are worth on paper. It is therefore difficult for a bank in such a position to be solvent. Action can be taken only when it is certain that the bank is insolvent, and there must be hard evidence, because the bank has the right to appeal against the Bank of England's decision. If its licence is revoked, it can appeal to a banking appellate body, and it has the right to a court hearing in respect of a liquidation order. The Bank of England has made it clear that it is satisfied that it acted as soon as it felt that it had the necessary evidence.

Mr. Sheldon: Why was the bank authorised to be covered by the Bank of England in the first place? During the passage of the Banking Act 1979, we were given specific assurances that nobody would be given such authorisation unless it was composed of fit and proper people—and these were certainly not fit and proper people. A further obligation was imposed: that of continuing supervision. Neither of those requirements was met in this instance.
The Minister said that problems would arise once it was known that a bank was acting fraudulently. But the position could have been dealt with much earlier. Why was it not?

Mr. Maples: The right hon. Gentleman says that there has been inadequate supervision. According to him, the failure of a bank may be a definition of inadequate supervision, but he could not possibly know what the Bank of England has been doing since 1974, or whenever BCCI set up in this country.
When the bank set up here, it did not need any authorisation. It had been authorised in another European country, and was entitled to establish branches here in the mid-1970s. Under the Banking Act 1979 its licence could have been revoked, but I have already mentioned the difficulties involved in providing the necessary evidence. I have heard no one suggest that there was any evidence at the time of the problems that have now come to light. Under the Banking Act 1987, the bank was "grand-fathered", and, as a bank that was already in existence, it was entitled to continue in existence. I do not believe that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) can have any evidence that the Bank of England has failed in its supervision.
Hon. Members have asked why no action was taken earlier. None of the earlier rumours, and none of the work that was done, brought any fraud to light; all that we were told was that the bank had made losses.

Mr. Denzil Davies: Will the Minister give way?

Mr. Maples: I cannot take an intervention in the middle of replying to an intervention from the right hon. Member for Ashton-under-Lyne.
All the questions that were raised at that earlier stage concerned whether the bank had adequate financial controls, whether it had bad loans, and the fact that it had made losses. It was felt that the losses endangered the bank's liquidity and its equity base. In every case, the shareholders injected further funds to deal with the problems. The Price Waterhouse investigation, whose findings were given to the Bank of England on 27 June, provided the first evidence of fraud. It was on that

evidence that the Bank of England acted. It could not have acted on rumours, or on the basis that the bank was inadequately capitalised and that, whenever losses were made, additional capital was injected.

Mr. Davies: rose—

Mr. Maples: I will give way, but I am afraid that this cannot go on. I am not getting around to answering any of the points that have been raised.

Mr. Davies: I am grateful. I do not know whether I should admit it, but I was the Minister responsible for the Banking Act 1979. Does not the Economic Secretary agree that, under that Act, the Bank of England had greater and better powers to police institutions such as BCCI than were conferred by the Act that followed it, which the present Government invoked to repeal the 1979 Act?

Mr. Maples: No, I do not agree. When the 1987 legislation was going through the House, every hon. Member agreed that it gave the Bank of England greater powers and tightened up the regime. I am not criticising the 1979 Act, which was a considerable step forward; indeed, I gave way to the right hon. Member for Llanelli (Mr. Davies) because I knew that he had been a Treasury Minister at the time. The only difference of which I am aware is that, under that Act, the banks were not automatically "grandfathered", and the Bank of England was able to remove licences more easily than it could have done under the 1987 Act. Revoking licences involves problems, however, in relation both to obtaining evidence and to the consequences of such action.
Many people seem to think that the Government, or the Bank of England, can provide a guarantee. I am not ascribing that view to any specific Member, but some of the comments, especially those about local authorities, suggested that the Government or the Bank of England could guarantee that a bank would never go broke. It must be clear to the hon. Members for Workington (Mr. Campbell-Savours) and for Redcar (Ms. Mowlam) that that is not the case.
If it is accepted that a bank can fail, it must be accepted that people must bear the costs of that failure. The alternative is for the Government or the Bank of England to step into the breach and pay all the money—which is exactly the same as guaranteeing that the bank could not be insolvent, or go into liquidation, in the first place. we accept that it can, and that it is not reasonable to expect public funds to guarantee every liability of every bank, we must also accept that the creditors must bear some of the costs.
Because that would have harsh consequences, successive Governments have introduced deposit protection schemes. The limit under the 1979 Act was £10,000, not £20,000; it was raised in 1987, partly as a result of overtures from Opposition Members, although the Government readily agreed to the move. Some could argue that the limit was too high, although others argue that it was too low. It could be said that a moral hazard must be created, and that the aim was to protect small depositors who could not be expected to be aware of the position. I believe that 75 per cent. of £20,000 is a reasonable scheme. We have no intention of making proposals to raise or change that sum. I am afraid that it is important that such a hazard is involved in doing business with banks.
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As several hon. Members have explained, there is a risk-reward ratio in dealing with investments. If the Government were effectively to underwrite a far greater percentage, or if we had an American system whereby the first $100,000 in an account was underwritten by the Government, people would place their money with the institution offering the highest rate of return knowing that it was guaranteed by the Government. The Government would not be allowing the market to create any distinction between banks running their affairs conservatively and well and those running their affairs irresponsibly and taking greater risks.
It has been said that the deposit protection scheme could be more generous. I have now explained the consequences of that. In my statement last Monday, I was asked whether we should have a scheme like the American scheme and I have tried to explain how that could create problems in the United States which we would not want to repeat here.
Other hon. Members suggested that the Government should be responsible for standing behind local authorities. We cannot be. Others asked whether the scheme should be made more generous, and I have tried to explain why it cannot be. We should all realise that the collapse of any bank, particularly one with as many customers as BCCI, is clearly a tragedy for the customers, for the businesses doing business with them, for the depositors and for those who borrowed money, because I suspect that they will be called upon to repay it sooner than they expected.
The deposit protection scheme will be activated as soon as is conceivably possible. The Bank of England is taking steps with the full co-operation of the liquidators to compile lists of depositors and their addresses even in advance of the liquidation order. The bank has an accelerated hearing for the liquidation order; it will now be heard on Monday 22 July. That is about as soon as it could conceivably have been heard. If it is granted—and I have no reason to suspect that it will not be granted, but it is a court order that is being sought—letters and claim forms will be sent to depositors as soon as possible. It should therefore be possible to pay the vast majority of depositors extremely quickly. I cannot give a timetable because we do not know how many people are involved. It may amount to 100,000. Clearly there is a logistical problem in processing 100,000 applications.

Ms. Abbott: Will the Economic Secretary give way?

Mr. Maples: This is an important point. If the hon. Lady will allow me to deal with it, I will give way later.
I have made it clear to the Bank of England that the utmost priority should be given to dealing with the claims as soon as possible and that the bank should have the necessary temporary staff to deal with the applications. I am confident that the bank will do that, and I will stay in touch with the operation to ensure that everything is being done as fast and as efficiently as possible. However one looks at it, it will be difficult to process 100,000 applications and it will take a little time.
There will also be some difficult cases. The vast majority of the cases will be simple. People will have one account at one branch, that person's identity will be clear, that person will not have other borrowings or dealings with the bank and the account will not be held in trust for someone else.
That kind of person can be dealt with quickly. As we found with the British Commonwealth merchant bank case, in other cases there will be complications. We do not expect more than a minority of the depositors to be involved in such cases, but there will have to be investigations in some cases.
With regard to small businesses, I outlined on Monday a scheme which the Bank of England was trying to establish. Considerable progress has been made with that and at least one clearing bank has nominated several of its branches specifically to help former customers of BCCI, to deal with their applications, to process with the liquidator the status of accounts, how they had been run and whether it is possible to release security. The best way to deal with the problem is to arrange for other banks to step into the breach. So far as I am aware, the attitude of the other big clearing banks is positive. Undoubtedly some extremely good businesses banked with BCCI and they offer good business opportunities for the other banks. As I have said, the Bank of England is actively helping to establish those arrangements.

Ms. Abbott: The Economic Secretary has spent considerable time answering arguments that Opposition Members have not put to him. Does he have any intention of answering our specific questions, particularly about the auditors? Why is the 1990 Price Waterhouse report not to be published? Did the Bank of England ask Ernst and Young why it gave up the lucrative BCCI account of its own volition?

Mr. Maples: If the hon. Lady would allow me to make my speech in my own way, she will discover that I have a raft of answers for the points that were raised. If I may say so, the hon. Lady made an intemperate intervention. Most of the points that I have answered were raised, if not in this debate today, then in the newspapers. There was considerable discussion on the Opposition Benches about whether the deposit protection scheme was adequate and whether the Government should stand behind local authorities.

Mr. Gerald Howarth: Will my hon. Friend acknowledge that there will be a widespread welcome in the country for the restatement of the Government's resolve not to bail out BCCI's creditors in any other way than is already provided for by statute? Does he accept that local authorities, such as Lichfield district council, which have been prudent and have forgone the extra one eighth of 1 per cent. in order to ensure that they are investing in proper institutions understand that if the Government were to follow the Opposition's advice that would simply encourage imprudence on a wide scale and penalise the authorities that have looked after their charge payers' money?

Mr. Maples: I agree with my hon. Friend. I tried to make that point earlier.
I want now to deal with some of the specific points that were raised. The compensation scheme under the Financial Services Act 1986 is more generous because, in general, ordinary investors tend to have larger sums invested in unit trusts, investment trusts or pension funds than in bank deposits. Paying a percentage of £20,000 is probably the right way to deal with bank deposits with its slightly more generous scheme for investors.
I was asked about the 1.990 Price Waterhouse report. I understand that there have been a number of reports in recent years relating to the financial condition of BCCI. The response to those reports was a need for additional capital, usually at the prompting of the supervisory authorities, and that capital was always forthcoming and the bank was always adequately capitalised. At least, when a request for additional capital was made, it was forthcoming. Those previous reports related to financial controls, bad debt, and the bank's operating losses. They stated that in all cases the problems could be corrected through the bank being adequately capitalised and additional capital was forthcoming.
None of the earlier reports contained evidence of fraud or other wrongdoing of the kind that prompted the action which the regulators took earlier this month. That was the first occasion when there was hard evidence on which the Bank of England could act.

Mr. McCartney: What about the soft evidence?

Mr. Maples: I explained earlier the need for hard evidence. If there is no hard evidence, the Bank of England would lose the case on appeal and would essentially have ruined the bank because it would not be able to continue to operate.

Mr. Wallace: The Economic Secretary has been very good at giving way. I understand what he said about hard evidence and the difficulties about rumours of fraud. However, how did the Bank of England react to the guilty plea in the American courts in connection with serious charges involving drug trafficking? When the matter was raised in another place, we could get no answers from Ministers.

Mr. Maples: I dealt with that issue last Monday. The bank pleaded guilty in the United States because in America companies can be vicariously liable for the criminal acts of their employees. It was thought at the time—it may be true, and I do not know that any evidence to the contrary has since come to light—that those activities were confined to the Tampa branch of the bank and that the people concerned were not associated with the senior management of the bank in London. There was no evidence of fraud. There was evidence of illegal activities in laundering drug money, but there was not evidence of what has given rise to the revocation of the bank's licence, namely, that the bank was being systematically defrauded of funds by its senior executives. No evidence of that was contained in those matters in the United States.
I was asked some specific questions by the hon. Members for Workington and for Redcar. Mortgagees have a liability to continue to pay, but they will be entitled to have their property back once the deed has been paid off. They are simply debtors of the bank, and part of the liquidators' task will be to collect the assets of the bank—of which mortgages will be one.
I was asked why Ernst and Whinney gave up the audit. I do not know and I cannot speculate about that. I know that the regulators in various countries wanted one company—in this case Price Waterhouse—to take on the whole audit. They were worried that there were two separate auditors—a situation that was deliberately created and perpetuated by the bank itself. The fact that there were two separate auditors must have made it far

easier to conceal the frauds because money could be moved from one section of the group to another when an audit or inspection was taking place.
I was asked about the insurance company CCL. I am told that, although BCCI acted as one of the company's principal bankers and as one of its appointed representatives for the sale of life policies, CCL held no shares in BCCI and is not a subsidiary of BCCI. I cannot give the hon. Member for Workington any further information about the connection. Neither is a subsidiary of or a shareholder in the other. The regulation of insurance companies is a matter for the Department of Trade and Industry, which is fully aware of all that we know about the problems surrounding the bank and is looking into the matter. As the hon. Gentleman knows, under the Policyholders Protection Act 1975, policyholders would get compensation up to a high level of any liabilities of a failed insurance company. There is no evidence that it will be necessary to invoke that Act.
I was asked why Chancery and Edington remained on the list. Whether that was unfortunate and misled anyone or not, there was no way in which either bank could have taken deposits. Both were in administration at the time and had had their licences suspended. I understand that they were not removed from the list because their licences had not been cancelled and, at some stage in the future, they could have been reauthorised or had their licences reactivated. That could not have endangered any depositor's money because the banks could not have taken deposits at that stage.
It was a most peculiar suggestion and I cannot understand why I was asked whether the Foreign Office tried to stop the Bank of England launching a section 41 inquiry earlier. I am told that the answer is categorically no. I was asked about the investigation of money brokers and their commissions.

Mr. Campbell-Savours: The Pakistani insurers.

Mr. Maples: I do not know the answer to whether the insurers of the bank's liabilities are active. The liquidators will look into that. If those insurers are active, that will be a source of some protection for the depositors. I am afraid that I have no knowledge of that.
The hon. Gentleman raised the question of the money brokers. Money broking is a deregulated area of the market, so people are entitled to negotiate their own commissions. If money brokers pushed depositors, especially local authorities, towards the bank because they were being paid over-the-odds commissions and were not disclosing that to the local authorities, and if the local authorities had reason to think of the money brokers as their advisers, local authorities may have some recourse against their money brokers. I do not know. I am, on the whole, in favour of the disclosure of commissions. That makes for a much cleaner market and cleaner arrangements between people. However, local authorities could have asked the money brokers to disclose their commissions. If they had refused to do so, the local authorities would have had some cause for complaint.
I was asked about the college of regulators. It was not really set up under the formal Basle procedure. It was the first example of an international college of regulators being put together, and it was put together by the Bank of England. Whether it could have been put together earlier or whether it could have waited slightly longer are difficult


questions. I do not know the answer. The bank would say that it was put together as soon as it thought that it was appropriate to do so.
I have dealt with most of the points that were raised in debate. If any hon. Member feels that there are points with which I have not dealt—

Ms. Mowlam: The Minister did not answer one important point. When the bank was closed on 5 July, the local authorities were in and the small investors were in. However, there seems to be no sign that the clearers had any exchange trading going on. Why did the clearers seemingly not get caught too?

Mr. Maples: It has been commented that anybody would realise that people paying slightly over the odds were incurring a higher risk. The other clearers may have been a more sophisticated group of counter parties. The premise of the hon. Lady's question is not necessarily true. It is not the case that there were no outstanding transactions with the clearers. There must have been many outstanding transactions in the market because the bank was closed in the middle of the day. Some of the clearers may have been on the other end of the transactions. It is clear that people could assess the risks of dealing with different counter parties. I know that large banks and large financial institutions, as my hon. Friend said, have rules about the exposure that they may have to particular institutions. I expect that their permitted exposure to BCCI was fairly small.

Mr. Campbell-Savours: The Minister said that he would answer all outstanding questions. May I remind him of what they were? We asked him about the £2·3 billion offered to the bank by Ghanem Al Mazrui from Abu Dhabi in the hours immediately before the closure. Is that correct? We also asked about the £375 million which was sent to the bank by Sheikh Zayed Bin Sultan al-Nahayan two weeks before the closure of the bank. We also asked about—[HON. MEMBERS: "Come on."] These are very important matters. The Minister asked us to set out our position. I also asked about the distinction being drawn by Westminster city council between lending and deposit making. I asked about the statement made by Ian Brindle of Price Waterhouse. He said that Price Waterhouse repeatedly informed the Bank of England of irregularities.

Mr. Maples: I have already dealt with the question of irregularities. I said that they were all related to loan losses, lack of financial controls, and the need for additional equity capital which was injected on every occasion on which it was required. The first hard evidence of fraud emerged in the Price Waterhouse inquiry, the report of which was delivered to the Bank of England on 27 June.
In my own mind, I am aware of no distinction between lending to a bank and making a deposit with it. I do not know what the treasurer of Westminster city council had in mind. I am responsible for many things, but not for what he says.
There were certainly additional injections of equity capital. I am not sure whether the hon. Gentleman's figures are right. There were several occasions on which additional injections of capital were requested and made.
It is not for me to comment on what the shareholders might have done if the restructuring had gone ahead. Additional injections of capital might have been made. However, the evidence of fraud was so pervasive and involved the senior management of the bank to such an extent that the regulators came to the conclusion that there was no way in which the management could be allowed to operate, whether additional capital was injected or not.
If there are points with which hon. Members think I have not dealt, I hope that they will write to me and I will seek to answer them. In the circumstances, I hope that they will feel that at this stage it is not in the interests of banking regulation to pass new clause 37.

Mr. Paul Boateng: This has been a good debate, although it is a pity that the response from the Economic Secretary was so very inadequate. He gave few answers to the many Opposition questions. It is clear from the response of Conservative Members to those answers that they are only too anxious to mull over them in the course of a good supper.
The Opposition, however, recognise only too clearly that the Minister's responses provide particularly thin gruel for the many deposit holders who are concerned about interest rates and about bank charges. We believe that the answers provide very thin gruel indeed for those who have suffered as a result of the collapse of BCCI. We want our questions to be answered.
It was instructive to hear the Economic Secretary's response to the important points that were raised by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). It revealed the arrogance and, I am bound to say, the complacency—I use those words with a degree of sadness—that have characterised the Government's response throughout the BCCI farrago. The response from the Economic Secretary was that my right hon. Friend did not know what the Bank of England had been doing since the 1970s. That is precisely our point. This House does not know what the Bank of England has been doing since the 1970s, although we have a pretty strong suspicion about what BCCI has been doing since the 1970s.
We ask—we reiterate our demand tonight—that in the interests not only of the many small business men throughout the country who have suffered as a result of the collapse and whose lives are in ruins, not only in the interests of the people who have been put out of work and whose homes and security have been threatened by the collapse of the bank, but on behalf of all those who are concerned about the probity of our banking sector, the way in which it is regulated and the way in which our supervisory system works, that there should be a full inquiry into the collapse of BCCI. Nothing less will satisfy the House or the people of this country. Then, perhaps, we shall have the answers to the questions that my hon. Friend the Member for Workington (Mr. Campbell-Savours) so eloquently asked when speaking to his new clause 37. They are important questions that need to be answered. We intend to continue to ask them day in, day out in the House until they are answered to the satisfaction of the House and the country as a whole.
I turn now to an examination of the important new clause 3, which, unfortunately, has not received the attention that it might have, for understandable reasons. There is a crisis of confidence among the customers and consumers of the banking sector about bank charges and the transparency of the market in banking services. That


crisis is due to the banks' failure to come clean about the impact of their charges and costs on the ordinary consumer. Our mailbags provide evidence of that, as do the columns of both popular and serious newspapers. Again, the public are entitled to reassurance.
Having set the hare running and sought to obtain a scapegoat for their own abysmal economic performance and the impact of high interest rates, the Government have sought to blame the banks for the suffering of the many small businesses that have gone under during the past six months. Small businesses failures are at a record level and are more than 50 per cent. higher than the level at this time last year.
The Government's response has been to set in train a Treasury study, of which they have leaked the conclusion without making the body of its findings available to the public or the House. We want those findings to be made public and to be the subject of a debate in the House. It is interesting that, as our proceedings draw to a close and we look forward to the recess, we are told that we shall have the report "some time". Why can we not have it now'? Why can we not have a clear undertaking from the Economic Secretary that we shall have the report before the end of the Session? If we had it, we could ensure that it receives the full glare of public scrutiny that it deserves. What have the Government got to hide? Why are they not prepared to have an open debate? They do not like it, do they?—[HON. MEMBERS: "No."] No, they do not like it, but by jove we shall make sure that this one does not get away. We want a clear and unequivocal undertaking tonight that there will be a debate on this issue. Is that too much to ask?—[HON. MEMBERS: "No."] No, and that is what we are asking for, and we shall ask again and again.
One important point to which all those outside the House will want to hear a response is the issue of the new banking code. It was put out in draft form by the banks and received a unanimous thumbs down from consumer groups. The National Consumer Council described it as wholly inadequate. A whole range—a "raft" to use the Economic Secretary's word—of consumer-oriented bodies is seeking amendments and changes to it. When will the code be published? If we do not have a clear undertaking from the banks that it will be published before the end of the summer, let me make one thing crystal clear: after the next general election, a Labour Government will introduce a statutory banking code to protect the interests of consumers—

Mr. Maude: More regulations.

Mr. Boateng: The Financial Secretary says, "More regulations." Yes, we shall regulate when it is necessary to protect consumers. It is the absence of proper, prudent regulation which has led to the current abuses. Yes, we shall regulate to ensure that there is full consultation on any change in the terms of an overdraft facility or account. Customers should not have to discover by accident that their margins or charges have been raised. If that requires regulation, we shall introduce such regulation. Any change in the terms that customers are obliged to endure should be fully justified. They should not have to pay higher margins because of an increase in risks across the bank's loan book, and we shall introduce regulations to ensure that they do not. There should be a reasonable time for the repayment of an overdraft or loan. How many of us, of all parties, have received letters from small business men

protesting about the way in which they have suffered at the banks' hands in this regard? How many small businesses have been brought to an end needlessly because the business man has not been given an opportunity to deal with the problem of the overdraft or loan?
If the banks do not put their own house in order, we shall put it in order for them—no one should be under any illusions about that—and the sooner, the better.

Question put, That the clause be read a Second time:—

The House divided: Ayes 213, Noes 316.

Division No. 209]
[7.58 pm


AYES


Abbott, Ms Diane
Evans, John (St Helens N)


Adams, Mrs Irene (Paisley, N.)
Ewing, Harry (Falkirk E)


Allen, Graham
Ewing, Mrs Margaret (Moray)


Anderson, Donald
Fatchett, Derek


Archer, Rt Hon Peter
Fearn, Ronald


Armstrong, Hilary
Field, Frank (Birkenhead)


Ashley, Rt Hon Jack
Fisher, Mark


Ashton, Joe
Flannery, Martin


Banks, Tony (Newham NW)
Flynn, Paul


Barnes, Harry (Derbyshire NE)
Foot, Rt Hon Michael


Barnes, Mrs Rosie (Greenwich)
Foster, Derek


Barron, Kevin
Foulkes, George


Battle, John
Fraser, John


Beckett, Margaret
Fyfe, Maria


Bell, Stuart
Galloway, George


Bellotti, David
Garrett, Ted (Wallsend)


Benn, Rt Hon Tony
George, Bruce


Bennett, A. F. (D'nt'n &amp; R'dish)
Gilbert, Rt Hon Dr John


Benton, Joseph
Godman, Dr Norman A.


Bermingham, Gerald
Golding, Mrs Llin


Blair, Tony
Gordon, Mildred


Blunkett, David
Gould, Bryan


Boateng, Paul
Graham, Thomas


Boyes, Roland
Grant, Bernie (Tottenham)


Bradley, Keith
Griffiths, Nigel (Edinburgh S)


Bray, Dr Jeremy
Griffiths, Win (Bridgend)


Brown, Gordon (D'mline E)
Grocott, Bruce


Brown, Nicholas (Newcastle E)
Hain, Peter


Brown, Ron (Edinburgh Leith)
Hardy, Peter


Buckley, George J.
Hattersley, Rt Hon Roy


Caborn, Richard
Heal, Mrs Sylvia


Callaghan, Jim
Henderson, Doug


Campbell, Menzies (Fife NE)
Hinchliffe, David


Campbell, Ron (Blyth Valley)
Hogg, N. (C'nauld &amp; Kilsyth)


Campbell-Savours, D. N.
Hood, Jimmy


Canavan, Dennis
Howarth, George (Knowsley N)


Carr, Michael
Howell, Rt Hon D. (S'heath)


Cartwright, John
Howells, Geraint


Clark, Dr David (S Shields)
Howells, Dr. Kim (Pontypridd)


Clarke, Tom (Monklands W)
Hoyle, Doug


Clelland, David
Hughes, John (Coventry NE)


Clwyd, Mrs Ann
Hughes, Robert (Aberdeen N)


Cohen, Harry
Hughes, Roy (Newport E)


Cook, Frank (Stockton N)
Illsley, Eric


Corbett, Robin
Ingram, Adam


Corbyn, Jeremy
Janner, Greville


Cousins, Jim
Jones, Barry (Alyn &amp; Deeside)


Cox, Tom
Kaufman, Rt Hon Gerald


Crowther, Stan
Kilfoyle, Peter


Cryer, Bob
Kinnock, Rt Hon Neil


Cummings, John
Lambie, David


Cunliffe, Lawrence
Lamond, James


Dalyell, Tam
Leadbitter, Ted


Darling, Alistair
Leighton, Ron


Davies, Rt Hon Denzil (Llanelli)
Lestor, Joan (Eccles)


Davies, Ron (Caerphilly)
Lewis, Terry


Davis, Terry (B'ham Hodge H'l)
Loyden, Eddie


Dewar, Donald
McAllion, John


Dixon, Don
McCartney, Ian


Doran, Frank
Macdonald, Calum A.


Douglas, Dick
McFall, John


Dunnachie, Jimmy
McKay, Allen (Barnsley West)


Eadie, Alexander
McKelvey, William


Eastham, Ken
McLeish, Henry


Edwards, Huw
McMaster, Gordon






McNamara, Kevin
Rooney, Terence


Madden, Max
Ross, Ernie (Dundee W)


Mahon, Mrs Alice
Rowlands, Ted


Marek, Dr John
Ruddock, Joan


Marshall, David (Shettleston)
Salmond, Alex


Marshall, Jim (Leicester S)
Sedgemore, Brian


Martin, Michael J. (Springburn)
Sheerman, Barry


Martlew, Eric
Sheldon, Rt Hon Robert


Maxton, John
Shore, Rt Hon Peter


Meacher, Michael
Short, Clare


Meale, Alan
Skinner, Dennis


Michael, Alan
Smith, Andrew (Oxford E)


Michie, Bill (Sheffield Heeley)
Smith, C. (Isl'ton &amp; F'bury)


Michie, Mrs Ray (Arg'l &amp; Bute)
Smith, Rt Hon J. (Monk'ds E)


Molyneaux, Rt Hon James
Smith, J. P. (Vale of Glam)


Morgan, Rhodri
Soley, Clive


Morley, Elliot
Spearing, Nigel


Morris, Rt Hon A. (W'shawe)
Steinberg, Gerry


Morris, Rt Hon J. (Aberavon)
Stott, Roger


Mowlam, Marjorie
Strang, Gavin


Mullin, Chris
Straw, Jack


Murphy, Paul
Taylor, Mrs Ann (Dewsbury)


Nellist, Dave
Thompson, Jack (Wansbeck)


Oakes, Rt Hon Gordon
Trimble, David


O'Brien, William
Turner, Dennis


O'Hara, Edward
Wallace, James


O'Neill, Martin
Walley, Joan


Orme, Rt Hon Stanley
Warden, Gareth (Gower)


Parry, Robert
Wareing, Robert N.


Patchett, Terry
Watson, Mike (Glasgow, C)


Pendry, Tom
Welsh, Michael (Doncaster N)


Pike, Peter L.
Williams, Rt Hon Alan


Powell, Ray (Ogmore)
Williams, Alan W. (Carm'then)


Prescott, John
Wilson, Brian


Primarolo, Dawn
Winnick, David


Quin, Ms Joyce
Wise, Mrs Audrey


Radice, Giles
Worthington, Tony


Randall, Stuart
Wray, Jimmy


Redmond, Martin
Young, David (Bolton SE)


Rees, Rt Hon Merlyn



Richardson, Jo
Tellers for the Ayes:


Robertson, George
Mr. Frank Haynes and Mr. Thomas McAvoy.


Rogers, Allan



Rooker, Jeff 





NOES


Adley, Robert
Braine, Rt Hon Sir Bernard


Alison, Rt Hon Michael
Brandon-Bravo, Martin


Allason, Rupert
Brazier, Julian


Amess, David
Bright, Graham


Amos, Alan
Brown, Michael (Brigg &amp; Cl't's)


Arbuthnot, James
Browne, John (Winchester)


Arnold, Jacques (Gravesham)
Bruce, Ian (Dorset South)


Arnold, Sir Thomas
Buck, Sir Antony


Ashby, David
Budgen, Nicholas


Aspinwall, Jack
Burns, Simon


Atkins, Robert
Butcher, John


Atkinson, David
Butler, Chris


Baker, Rt Hon K. (Mole Valley)
Butterfill, John


Baker, Nicholas (Dorset N)
Carlisle, John, (Luton N)


Baldry, Tony
Carrington, Matthew


Banks, Robert (Harrogate)
Cash, William


Batiste, Spencer
Chalker, Rt Hon Mrs Lynda


Beaumont-Dark, Anthony
Channon, Rt Hon Paul


Bellingham, Henry
Chapman, Sydney


Bendall, Vivian
Chope, Christopher


Bennett, Nicholas (Pembroke)
Churchill, Mr


Benyon, W.
Clark, Dr Michael (Rochtord)


Bevan, David Gilroy
Clark, Rt Hon Sir William


Blackburn, Dr John G.
Colvin, Michael


Blaker, Rt Hon Sir Peter
Conway, Derek


Body, Sir Richard
Coombs, Anthony (Wyre F'rest)


Bonsor, Sir Nicholas
Coombs, Simon (Swindon)


Boscawen, Hon Robert
Cope, Rt Hon Sir John


Boswell, Tim
Cormack, Patrick


Bottomley, Peter
Couchman, James


Bottomley, Mrs Virginia
Cran, James


Bowden, Gerald (Dulwich)
Currie, Mrs Edwina


Bowis, John
Davis, David (Boothferry)


Boyson, Rt Hon Dr Sir Rhodes
Day, Stephen





Devlin, Tim
Irvine, Michael


Dickens, Geoffrey
Irving, Sir Charles


Dicks, Terry
Jack, Michael


Dorrell, Stephen
Jackson, Robert


Douglas-Hamilton, Lord James
Janman, Tim


Dover, Den
Jessel, Toby


Durant, Sir Anthony
Johnson Smith, Sir Geoffrey


Dykes, Hugh
Jones, Gwilym (Cardiff N)


Eggar, Tim
Jones, Robert B (Herts W)


Emery, Sir Peter
Jopling, Rt Hon Michael


Evans, David (Welwyn Hatf'd)
Kellett-Bowman, Dame Elaine


Evennett, David
Kilfedder, James


Fairbaim, Sir Nicholas
King, Roger (B'ham N'thfield)


Fallon, Michael
Kirkhope, Timothy


Farr, Sir John
Knapman, Roger


Fenner, Dame Peggy
Knight, Greg (Derby North)


Field, Barry (Isle of Wight)
Knight, Dame Jill (Edgbaston)


Finsberg, Sir Geoffrey
Knowles, Michael


Fishburn, John Dudley
Lang, Rt Hon Ian


Fookes, Dame Janet
Latham, Michael


Forman, Nigel
Lawrence, Ivan


Forsyth, Michael (Stirling)
Lee, John (Pendle)


Forth, Eric
Lennox-Boyd, Hon Mark


Fowler, Rt Hon Sir Norman
Lester, Jim (Broxtowe)


Fox, Sir Marcus
Lloyd, Sir Ian (Havant)


Franks, Cecil
Lloyd, Peter (Fareham)


Freeman, Roger
Lord, Michael


French, Douglas
Luce, Rt Hon Sir Richard


Fry, Peter
Lyell, Rt Hon Sir Nicholas


Gale, Roger
McCrindle, Sir Robert


Gardiner, Sir George
MacGregor, Rt Hon John


Garel-Jones, Tristan
MacKay, Andrew (E Berkshire)


Gill, Christopher
Maclean, David


Gilmour, Rt Hon Sir Ian
McLoughlin, Patrick


Glyn, Dr Sir Alan
McNair-Wilson, Sir Michael


Goodhart, Sir Philip
McNair-Wilson, Sir Patrick


Goodlad, Alastair
Madel, David


Goodson-Wickes, Dr Charles
Malins, Humfrey


Gorman, Mrs Teresa
Mans, Keith


Gorst, John
Maples, John


Grant, Sir Anthony (CambsSW)
Marlow, Tony


Greenway, Harry (Ealing N)
Marshall, John (Hendon S)


Greenway, John (Ryedale)
Marshall, Sir Michael (Arundel)


Gregory, Conal
Martin, David (Portsmouth S)


Griffiths, Sir Eldon (Bury St E')
Mates, Michael


Griffiths, Peter (Portsmouth N)
Maude, Hon Francis


Grist, Ian
Mawhinney, Dr Brian


Ground, Patrick
Maxwell-Hyslop, Robin


Grylls, Michael
Mayhew, Rt Hon Sir Patrick


Hague, William
Mellor, Rt Hon David


Hamilton, Neil (Tatton)
Meyer, Sir Anthony


Hampson, Dr Keith
Miller, Sir Hal


Hanley, Jeremy
Mills, lain


Hannam, John
Miscampbell, Norman


Hargreaves, A. (B'ham H'll Gr')
Mitchell, Andrew (Gedling)


Hargreaves, Ken (Hyndburn)
Mitchell, Sir David


Harris, David
Moate, Roger


Haselhurst, Alan
Monro, Sir Hector


Hawkins, Christopher
Montgomery, Sir Fergus


Hayes, Jerry
Moore, Rt Hon John


Hayhoe, Rt Hon Sir Barney
Morris, M (N'hampton S)


Hayward, Robert
Morrison, Sir Charles


Heathcoat-Amory, David
Morrison, Rt Hon Sir Peter


Hicks, Mrs Maureen (Wolv' NE)
Moss, Malcolm


Hicks, Robert (Cornwall SE)
Moynihan, Hon Colin


Higgins, Rt Hon Terence L.
Mudd, David


Hill, James
Neale, Sir Gerrard


Hind, Kenneth
Needham, Richard


Hogg, Hon Douglas (Gr'th'm)
Nelson, Anthony


Holt, Richard
Neubert, Sir Michael


Hordern, Sir Peter
Newton, Rt Hon Tony


Howard, Rt Hon Michael
Nicholls, Patrick


Howarth, Alan (Strat'd-on-A)
Nicholson, David (Taunton)


Howarth, G. (Cannock &amp; B'wd)
Nicholson, Emma (Devon West)


Howe, Rt Hon Sir Geoffrey
Norris, Steve


Howell, Rt Hon David (G'dford)
Onslow, Rt Hon Cranley


Howell, Ralph (North Norfolk)
Oppenheim, Phillip


Hughes, Robert G. (Harrow W)
Page, Richard


Hunt, Sir John (Ravensbourne)
Paice, James


Hunter, Andrew
Patnick, Irvine






Patten, Rt Hon Chris (Bath)
Stewart, Allan (Eastwood)


Patten, Rt Hon John
Stewart, Andy (Sherwood)


Pawsey, James
Stewart, Rt Hon Sir Ian


Peacock, Mrs Elizabeth
Sumberg, David


Porter, Barry (Wirral S)
Summerson, Hugo


Porter, David (Waveney)
Tapsell, Sir Peter


Powell, William (Corby)
Taylor, Sir Teddy


Price, Sir David
Tebbit, Rt Hon Norman


Raffan, Keith
Temple-Morris, Peter


Raison, Rt Hon Sir Timothy
Thompson, D. (Calder Valley)


Redwood, John
Thompson, Patrick (Norwich N)


Renton, Rt Hon Tim
Thorne, Neil


Rhodes James, Sir Robert
Thurnham, Peter


Riddick, Graham
Townend, John (Bridlington)


Ridley, Rt Hon Nicholas
Townsend, Cyril D. (B'heath)


Rifkind, Rt Hon Malcolm
Tracey, Richard


Roberts, Rt Hon Sir Wyn
Tredinnick, David


Rossi, Sir Hugh
Trippier, David


Rost, Peter
Trotter, Neville


Rowe, Andrew
Twinn, Dr Ian


Rumbold, Rt Hon Mrs Angela
Viggers, Peter


Ryder, Rt Hon Richard
Wakeham, Rt Hon John


Sackville, Hon Tom
Walden, George


Sayeed, Jonathan
Walker, Bill (T'side North)


Scott, Rt Hon Nicholas
Waller, Gary


Shaw, David (Dover)
Walters, Sir Dennis


Shaw, Sir Giles (Pudsey)
Ward, John


Shaw, Sir Michael (Scarb')
Wardle, Charles (Bexhill)


Shelton, Sir William
Watts, John


Shephard, Mrs G. (Norfolk SW)
Wells, Bowen


Shepherd, Colin (Hereford)
Wheeler, Sir John


Shepherd, Richard (Aldridge)
Whitney, Ray


Sims, Roger
Widdecombe, Ann


Skeet, Sir Trevor
Wiggin, Jerry


Smith, Sir Dudley (Warwick)
Wilkinson, John


Smith, Tim (Beaconsfield)
Wilshire, David


Speed, Keith
Winterton, Mrs Ann


Speller, Tony
Winterton, Nicholas


Spicer, Sir Jim (Dorset W)
Wolfson, Mark


Spicer, Michael (S Worcs)
Wood, Timothy


Squire, Robin
Yeo, Tim


Stanbrook, Ivor
Younger, Rt Hon George


Stanley, Rt Hon Sir John



Steen, Anthony
Tellers for the Noes:


Stern, Michael
Mr. David Lightbown and Mr. John M. Taylor.


Stevens, Lewis

Question accordingly negatived.

New Clause 9

CAPITAL ALLOWANCES

'In section 24 of the Capital Allowances Act 1990, for subsections (2)(a)(i) and (ii) there is substituted "33⅓ per cent. of the qualifying expenditure per annum.".'.—[Mr. David Shaw.]

Brought up, and read the First time.

Mr. David Shaw: I beg to move, That the clause be read a Second time.—[Interruption.]

Madam Deputy Speaker: Order. Hon. Members who are leaving the Chamber should do so quietly so that the hon. Member can be heard.

Mr. Frank Haynes: Buzz off.

Mr. Shaw: I thank you, Madam Deputy Speaker, and the hon. Member for Ashfield (Mr. Haynes) who has assisted in quietening the Chamber.
New clause 9 would change the rate of corporation tax allowance from a current writing down allowance of 25 per cent. on a reducing balance to a one third per annum allowance on a straight line basis. That would mean that all fixed assets purchased by business would be written off

over a three-year period instead of the current arrangement whereby the writing down allowance goes on virtually for ever if the asset remains in the business.
The proposal would help in particular the shipping industry, which was the subject of another amendment, manufacturing industry, farming and small businesses, all of which in one way or another depend on purchasing capital items. As the proposal is worded, it would not be a subsidy to investment. The old allowance of 100 per cent. in the first year was recognised as a subsidy for certain types of investment, although in the case of shipping there was a strong argument that it would not be a subsidy. Certainly, a one third per annum allowance would not be a subsidy for investment.
The new clause is necessary because it would be an incentive to invest in the United Kingdom. We have a problem, because although we are competitive internationally in the rate of corporation tax, we are no longer competitive in the writing down allowances that are given for investment in British industry. The basis on which I rely for that statement is a research paper produced by the Federal Reserve bank of New York. It completed a considerable piece of work on comparisons between the United Kingdom, Japan, Germany and the United States of America. We were immensely competitive in capital allowances until the changes in the mid-1980s. Since then we have become less competitive. It is necessary to restore that position.
One may be tempted to ask why we are uncompetitive in capital allowances. It is because of a ridiculous attitude in the Inland Revenue that goes back some years. I spent some time as an auditor in the 1970s trying to understand this. It is a strange attitude. In the United States of America the capital allowance regime works on the principle that, whatever the company decides should be its accounting depreciation rate, the Internal Revenue Service will go along with it. In some companies that means that the tax allowances are up front nearer to the time when the investment is made, and in other companies they are deferred. Industry has the option of determining its own allowances according to the conditions within the business. Any company in this country would probably enjoy that sort of tax regime and the Government should consider it, because it fits in with the free market philosophy. If a company is writing off its investments at a certain rate, surely the tax system should also accept that rate.

Mr. Richard Page: My hon. Friend's remarks are extremely interesting, but I have been concerned for some years about a particular point. The Government, rightly, reduced corporation tax on the argument that that would give more money to industry to invest as it thought fit. At the same time, we have the lowest percentage of investment in manufacturing industry among the G7 countries. We vie with the United States of America for the lowest figures and we are considerably behind Japan, Germany and France. How can we overcome that without some form of direct tax incentive to make sure that people invest?

Mr. Shaw: I agree with my hon. Friend and he makes a strong point. International comparisons for investment are not favourable, although they are favourable for the corporation tax rate. It is certainly necessary, when we


consider that the United Kingdom has been going through a recession and is, I hope, in the first stages of coming out of it, to look at how we can encourage businesses to invest, not only to bring us out of the recession more quickly, but, funnily enough, to prevent inflation from recurring. If we do not invest, we will not have additional capacity. If there is a shortage of capacity, inflation will return. It is necessary, in coming out of a recession, especially one induced to prevent inflation, to encourage more investment. There are several reasons why it is appropriate to change the capital allowances rate. My argument is that a one third, one third, one third principle would be a highly desirable change.
One must also consider the cash-flow cost of investment, which is incurred on day one. The current tax regime defers tax allowances for that investment over many years. It goes too far into the future to act as an incentive for the industries that need to be helped.
My proposal would cost nothing in terms of tax revenue. Ultimately the tax would be repayable to the Treasury. The only cost to the Treasury would be that of tax deferral as a certain amount of tax would be deferred into the future. There are various estimates of how much that interest cost will be. For the shipping industry the estimate is thought to be only about £30 million or £40 million if there were 100 per cent. allowances in year one.

Dr. Marek: The hon. Gentleman must remember that some years ago his Administration reduced the rate of corporation tax and that as a quid pro quo there was a much more stringent policy on capital allowances. Does he believe that that policy was wrong? If not, how much revenue would be forgone by the Treasury as a result of his proposal, for which I have some sympathy? One cannot consider the proposal in isolation.

Mr. Shaw: I can assure the hon. Gentleman that I have never believed that the Government's changes to capital allowances and the corporation tax rate were wrong in principle, but, having had time to study how capital allowances are operating relative to the corporation tax rate, I think that the change, although right in principle, went too far in practice. We need a straight line basis for writing off capital allowances. That is what my proposal would achieve.
As I understand it, the proposal would cost nothing. I am not proposing that industry should be given any tax subsidies; nor am I proposing any hand-outs for industry. I am proposing a deferral of the tax being collected on the basis that in any case British industry must pay 100 per cent. of the cost of the investment up front.
British industry is already paying out in terms of the effect on its cash flow. I ask the Government to help British industry to overcome its investment problems by accepting that it should have a deferral on its cash flow receipts. At the moment, British industry has a cash flow problem when it invests because it must pay that money up front.
I should like to draw attention to the way in which the new clause would help shipping—the subject of another new clause that was not selected. If the Government are averse, as suggested in Committee, to 100 per cent. capital allowances for shipping, they should seriously consider the benefits that would accrue from my new clause by accepting a one third, one third, one third write-off for tax

allowances on British shipping. Although the new clause would apply to all British industry, it would provide a significant benefit for British shipping.
The Government have been through two wars—the Falklands and the Gulf. It should be apparent to everyone that the defence needs of our country are greatly assisted by the merchant fleet and the many people who serve in it who are prepared to support our Navy in one form or another. It is apparent that we must maintain a considerable defence requirement. It has been suggested that that should be achieved through a private subsidy to assist the maintenance of certain types of ships. I do not believe that that would be sensible, as it would encourage the shipping industry to invest in a particular type of ship which is solely suited to military purposes or has a heavy bias towards military purposes. It would be more appropriate to have a tax allowance to ensure that for most of the time we could use normal merchant ships, which could be adapted for defence needs.
Shipping also contributes some £5 billion per annum to our balance of payments. It is a highly successful business, although in recent years the British merchant marine fleet has been forced to contract. That has been caused by factors that are often beyond Government control, such as the UNCTAD—the United Nations conference on trade and development—code. That code means that our shipping must compete with foreign shipping lines which are encouraged by those countries involved in the trade between the nations subject to that code. The opportunities for outsiders to trade with those countries has been severely limited in recent years as a result of the UNCTAD code.
The average age of the United Kingdom fleet is 14 years, which is older than the world average. In addition to that, 75 per cent. of the United Kingdom's shipping fleet will need to be replaced by 2000. Therefore, it is necessary to consider the means by which the British fleet will be able to replace its ships in the next few years. It is important that some form of capital allowance changes are made. My new clause would greatly help the shipping industry, as well as the rest of British industry.
The international competition in shipping and shipping allowances means that the United Kingdom is unfavourably placed in relation to Norway, Denmark and Germany, where it is possible to have limited partnerships. It is also unfavourably placed in relation to Denmark, Finland, France, Germany, Italy and Sweden where the capital allowances are 25 per cent. or better. My new clause proposes a one third, one third, one third principle which would bring the United Kingdom's shipping industry into a favourable position relative to those countries. Greece has no corporation tax on shipping. Therefore, it is necessary to consider capital allowances and the way in which individual industries are handicapped on the international market.
My new clause was discussed briefly in Committee and the argument used against it and the new clause on shipping was that 90 per cent. of tax reliefs are obtainable in seven to eight years. I put it to the Minister that that period is too long. Anyone who has done any form of discounted cash flow calculations will know that, after seven or eight years, £1 then is worth only 50p today. Therefore, the tax relief has changed from the days when 100 per cent. capital allowance existed and when £1 of relief was available on day one. In some cases £1 of tax


relief is worth only 50p. The shipping industry and British industry in general would benefit from a change to a one third, one third, one third regime.
I was disappointed that the argument in Committee was not based on the serious effect on British industry of the current tax regime, which results in a cash flow disadvantage. The new clause is desirable, because failure to take action and to implement a better capital allowance regime will probably delay recovery from the recession. It will cause disadvantages to those United Kingdom companies that trade on the international market and to those companies in the United Kingdom that face international competitors. At the moment, companies must borrow much more money than they might otherwise in order to make capital investment.
If 100 per cent. allowances obtained, more of the investment costs could he drawn from a company's resources rather than from borrowed finance. Even if a one third, one third, one third allowance existed, British industry would not have to borrow so much and therefore its cash flow position would be healthier.

Mr. Ted Garrett: If ever there were two industries that have been casualties of the ideological warfare that has taken place in this Chamber during my time in it they are the shipping and shipbuilding industries.
We now have just three major yards left in the United Kingdom that could build ships of the type that are required as a result of the depreciation of our merchant fleet. The hon. Member for Dover (Mr. Shaw) is right to say that the average age of the British fleet is 14 years. As a ship gets older the insurance rates increase.
I shall not detain the House for long, but I believe that the new clause is an opportunity for the Government to redeem themselves and their interest in the shipbuilding industry. It is a fact that we are now down to just over 900 ships registered under the British flag, which is extremely unsatisfactory.
The hon. Member for Dover also referred to the Falklands and Gulf wars. Those wars proved that we had to pay enormous charter rates. We were held to ransom by allegedly neutral or friendly countries when we had to charter ships to get our equipment and manpower to the correct place at the correct time.
Swan Hunter, the shipbuilding yard in my constituency, built the Atlantic Conveyor. Basically it is an air-support ship, but it does an enormous amount of work trading the oceans carrying containers.
The new clause presents an opportunity for the Treasury and the Ministry of Defence to get together to ascertain whether it is possible for them to provide support for British shipping through a proposal that would ultimately give additional finance to the British shipbuilding industry. To that end, I warmly support the new clause.

Mr. Martin Redmond: I support this sensible amendment and, if the Government have any common sense. they too will support it. Not to do so would be stupid and irresponsible. I have often criticised Government policy and I hope that the Government will apply common sense on this occasion.
May I speak briefly about the effect that the amendment will have on shipping? If we allow shipping to

decline, jobs will be lost throughout the country. We would then be unable to defend our national interests and that would not be patriotic.

Madam Deputy Speaker: Order. The hon. Gentleman is straying too far away from capital allowances. If he would keep his remarks more general, he would stay in order.

Mr. Redmond: I shall certainly seek your guidance on that, Madam Deputy Speaker. The amendment mentions a 30 per cent. capital allowance. If that allowance is not applicable to the shipping industry, it affects that and other aspects of productivity. Although it is applicable throughout industry, I wish to emphasise the impact that it would have on shipping. I am well aware that Mr. Speaker declined to accept an amendment on the shipping aspect—

Madam Deputy Speaker: Order. That is why I shall not allow a debate on shipping.

Mr. Redmond: And rightly so, Madam Deputy Speaker.
Unless the Government take the necessary steps to bring about a change and accept this sensible amendment, the country will run into trouble. Our competitors abroad are not inhibited by protection of their national interests. Allowances for all industries, including shipping, will enhance the country's economic future. If the Minister says that he is prepared to accept the clause, I shall congratulate him on his common sense. I regret that the Government operate market forces, which are fine except when the national interest is at stake. If the Government were to accept the same philosophy as Japan, America, Germany and other countries throughout the world, we would at least be in with a chance to compete on the same terms as those countries that seek to demean the British people. I do not know why the Government should seek to shy away from taking a step that would help to build up the British fleet.
Reference has already been made to the impact of the Falklands and the Gulf wars because of lack of investment. The clause would enable British ship owners to make investments that would bring about improvements in that industry. One of the consequences of the Government's lack of help to industry is that companies tend to try to reduce their losses. If the Government were interested in uplifting the British economy, I am confident that they would accept this sensible amendment but, I regret, I do not see the Minister having that little bit of common sense.
I do not normally support amendments tabled by Conservative Members, for a variety of reasons that I shall not go into. However, because our national interest is at stake, I feel that the whole House should support this new clause. I hope that the House will divide to ensure that people stand up to be counted so that industry knows precisely where it can lay the blame.

Mr. Denzil Davies: I, too, support the new clause. After 12 years of Tory Government it is refreshing to have a Conservative Member introduce a new clause, albeit modest, that will provide some support for British industry. He may have got there by the route of shipping—I do not object to that—but the new clause relates to all plant and machinery. The manufacturing industry uses far more plant and machinery than the service industry, the financial sector or the property industry. As the hon.
Member for Dover (Mr. Shaw) said, in the long term the Inland Revenue will not lose any money. However, because it thinks only in annual terms, it feels that it may lose money. The cash flow of the manufacturing industry may be slightly improved and, as the hon. Gentleman rightly said, there will be a reduction in the reliance on borrowing which has been the scourge of British industry, and the service, financial and manufacturing industries are now paying the price.
The hon. Member for Dover also asked why we do not adopt the American system if a company wishes, for accounting purposes, to set off its depreciation against its profits in year one or year two. Why not allow the same for investment allowances? I suspect that the Inland Revenue does not like that suggestion. I remember years ago when Trafalgar House bought P & O, and I suspect that it did so for investment allowances. [Interruption.] I am sorry, the company that it bought was Cunard. I knew that it was a shipping and building company. Perhaps the Inland Revenue does not like the idea because it presents opportunities for avoidance. However, the new clause seeks simply to bring forward relief if a company so wishes. The Chief Secretary may argue against the amendment but I do not see what he can say against it. He may argue that it will cost more money in the first year, but he cannot be sure that it will because he does not know how the companies will react.
I shall not introduce the EC into the debate because you would rule me out of order, Madam Deputy Speaker. National taxation and investment allowances may soon be the only way in which the House can support the manufacturing industry. We have read about the problems that the French are having with subsidies to their computer industry and there are EC regulations in that respect. However, in this area of taxation—probably the last one left to us—we are still able to assist our manufacturing or any other industry by providing allowances.
I hope that my hon. Friends on the Opposition Front Bench will support the new clause. I do not want to berate the hon. Member for Dover—I am happy that he proposed the new clause—but it is a slight admission that the blanket reduction in corporation tax, covering all industries, whether they invested in plant and machinery or not, helps service and financial sectors more than the manufacturing sector. Perhaps that blanket reduction in corporation tax was not entirely wise.
The Opposition do not want to support manufacturing industry because they like dark, satanic mills and do not like the service sector. However, while, we do not have a common currency, to pay its way in the world the United Kingdom has to sell its goods abroad for foreign currency. The service industry and the financial sector in the main do not provide the revenue that we need to pay our way in the world. That is why the Opposition want to provide some modest assistance, and I think from what he has said that the hon. Member for Dover agrees with that.
I would have thought that, in this new age and with the new world order emerging from No. 10 Downing street—which is different from the order that we have had during the past 12 years—the Government would want to

help manufacturing industry a little. The Government would be wise to do so because that is the only way that we, as a country, will balance our books.
I am sure that the Chief Secretary has a large "no" written by the Inland Revenue on his brief, but he should throw away his brief. I am sure that he would love to do so, especially with his public expenditure brief, which he does not have with him at present. Despite the fact that the Chief Secretary's constituency is Putney, where there are few manufacturing industries, he should take the larger view of the subject, compliment the hon. Member for Dover on his splendid new clause and accept it.

Mr. Robert Banks: I had not intended to speak in the debate. I have previously given my support to the shipbuilding industry, especially the merchant fleet, and felt that my hon. Friend the Member for Dover (Mr. Shaw) could do with some support from other Conservative Members. As I listened to Opposition speeches some doubts were sown in my mind as to whether I was on the right course. However, I realise that I would be straying from the realms of order if I were to talk too much about merchant shipping.
There comes a period in every industry's history when it needs some stimulus and help from Government. The measure, modest though it is, would be of considerable help, particularly to the merchant fleet. As our defence commitments are being reduced—which is a matter for great joy—and as our forces are being cut back, nothing could be more important than having British ships on the world's oceans. The Merchant Navy has one of the greatest histories and reputations in the world for the way in which it carries out its duties. I believe that a measure of help is particularly appropriate now because of the aging fleet, as was described by my hon. Friend the Member for Dover. Therefore, I hope that my right hon. and learned Friend the Chief Secretary will be able to say something tonight that will help the merchant fleet.

Dr. Marek: I am amazed that the hon. Member for Dover (Mr. Shaw) can table such an amendment because it was only a few months ago that I remember him as being so far to the right that, if we had a wall chart with a spectrum of people from the left of the Conservative party and the right of the Conservative party, he would be off the chart on the right. He was more Thatcherite than the right hon. Member for Finchley (Mrs. Thatcher). Clearly, he has been on the road to Damascus. I wonder why he was on that road. I do not think that I should dwell on that matter for too long but leave it to hon. Members to make up their own minds.
I shall make two succinct points. First, we as a country will not survive unless industry prospers and manufactures. For that to happen, there is no doubt that industry must invest. Secondly, it is absolutely vital for us to have a shipping industry and help must be given to allow ships to be built in British shipyards, ships to be flagged with the British flag and ships to retain British crews.
The new clause would go some way towards fulfilling both those aims. I do not completely accept the seductive and good speech of my right hon. Friend the Member for Llanelli (Mr. Davies). He was partly right, but we need a package of measures to achieve all the ends, not just one clause alone. Therefore, I wish to suspend judgment and make the plea that more must be done for industry to


invest. We must safeguard our British fleet, but I wonder whether the new clause would be appropriately targeted. How much would it cost to implement the new clause and how well would it be targeted?

The Chief Secretary to the Treasury (Mr. David Mellor): First, I thank all those who have participated in the debate, not only for the eloquence of their speeches, but for the brevity and discipline with which they made them. I appreciate that and shall seek to emulate it. The points that have been raised are important and I am certainly more than willing to give an account of myself at the Dispatch Box, although the right hon. Member for Llanelli (Mr. Davies) will be sad to know that I am as attached to my brief as Linus is to his blanket.
It was a particular pleasure to hear the hon. Member for Wallsend (Mr. Garrett); I hope I shall not embarrass him too much if I say that he is one of my favourite Members of Parliament. I understand why he said what he did because, in his lifetime, he has seen tremendous changes in a great industry. I assure him that we are well aware of what that means. The difficulty—as I shall seek to demonstrate—is that well-intentioned arrangements designed to deal with the problems do not and will not necessarily do so, and we must be fairly rigorous in our analysis of what is proposed.
My hon. Friend the Member for Dover (Mr. Shaw) acknowledged that the Government took a conscious decision in 1984 to alter the rules on capital allowances and move from a 100 per cent. first-year system to one allowing investments to be written off over seven to eight years—a provision that is still generous as most pieces of equipment last for longer than that. We have heard much about the shipping industry—rightly so as it is important. I know that many hon. Members feel strongly about it. I do not want to stray out of order, but it is worth considering that most ships have an average life of 15 to 20 years, so the capital allowance system, even as it exists, is not ungenerous, particularly when one considers that there are special rules to deal with the depreciation of short-life assets.
In 1984, a decision was taken to move to the new system. There was a striking quid pro quo for that change in the dramatic cut in corporation tax from 52 to 35 per cent., which the Budget proposes to reduce further to 33 per cent., thereby restoring this country's claim to have one of the keenest corporation tax rates in the world.
We must not underestimate the tremendous benefits that have come from that change. In the last three years of the 1980s there was an increase in investment of more than 40 per cent. I shall not recount all the statistics and weary the House with them tonight, but they all show that Britain's exceptionally good performance in the 1980s made it the country of choice for the investment of a. large amount of money from key industrial overseas countries, with one third of Japanese investment world wide coming to the United Kingdom, two thirds of American inward investment coming into the European Community and a European Community total of inward investment from outside of almost 40 per cent. That is well ahead of countries such as France which has 14 per cent. and West Germany which has 2 per cent. That was a tremendous boom in investment. Even with the recognition in the Budget statement that investment will fall this year, it will still be about 58 per cent. more than it was at the beginning of the last decade. In constant money terms, business

investment has risen from £35 billion at the end of the 1970s to £55 billion or £56 billion at the end of the 1980s. That is a tremendous increase.
Against that background there would have to be a striking and compelling case for moving back to capital allowances. To do that would be enormously expensive. I do not criticise my hon. Friend the Member for Dover for not having access to figures. I would not have them either were it not for the service provided by the Inland Revenue.
The hon. Member for Wrexham (Dr. Marek) asked about cost. For the reasons given by the right hon. Member for Llanelli from his experience as a Treasury Minister I can give only an estimate. The Inland Revenue's best estimate for 1992–93—bearing in mind that in the new clause the enhanced rate of allowances would apply not only to new investment but to unrelieved past expenditure—is £2·15 billion; for 1993–94, £1·95 billion; for 1994–95, £1·6 billion; for 1995–96, £1·4 billion; and for 1996–97 £1·25 billion. That is a total of about £8·5 billion over five years. The right hon. Member for Llanelli suggested that I should throw away my brief. To do so would be an expensive chuck.
I do not want to stray out of order, but I should like to deal briefly with shipping. The new clause would not necessarily help British shipbuilding because capital allowances are available wherever ships are built and cannot be restricted by European Community and other rules to the United Kingdom. One hundred per cent. capital allowances would open a whole range of potentially attractive dodges. For example, a bank in Britain could buy a ship made in Japan, obtain the allowances, and lease the ship to a company in Korea or Taiwan where it would compete with British ships. I am anxious to look after the best interests of the British merchant marine, but this is not a guaranteed way to help. There were 100 per cent. capital allowances in the decade from the mid-1970s to the mid-1980s and the British merchant fleet shrank from 32 million tonnes to 13 million tonnes. That statistic straddles two Governments, so it is not partisan.
Where we can help we do and we have. For example, important changes were made in 1985 to the rules on writing down allowances, and in 1986 the business expansion scheme was extended to include ship chartering. Clause 44 of the Bill makes further changes to the tax arrangements for British seamen, increasing the number who can qualify to pay no tax as a result of being out of the jurisdiction for the qualifying period of the year. That is an attempt to make it more economical to employ British seamen.
Undoubtedly, some issues on the United Kingdom register need to be addressed because any ship that benefited from the capital allowances scheme proposed by my hon. Friend the Member for Dover would not have to be given a British flag but could be flagged out. Therefore, the problems of flagging out need to be addressed separately. They are being addressed, and the report of a technical working party is being carefully studied. An important defence issue is being addressed by Ministers and in due course more can be said about it.

Mr. Den Dover: Will the Minister confirm that the reduction from the 1970s to the 1980s in the British fleet from 30 million tonnes to 13 million tonnes owed more to flagging out than to the availability of capital allowances?

Madam Deputy Speaker: Order. We are straying far from the point, as I know the Minister appreciates.

Mr. Mellor: I do, and I am grateful for your guidance, Madam Deputy Speaker.

Mr. Nicholas Brown: Will the Minister give way?

Mr. Mellor: The hon. Gentleman is not as appealing as you, Madam Deputy Speaker, but provided that he allows me to stay in order I shall give way to him.

Mr. Brown: I shall not debate whether I am as appealing as you, Madam Deputy Speaker, because there is absolutely no contest. I found beguiling the Chief Secretary's point about ships taken up from trade. That is an important issue because it affects the merchant fleet. May we expect a statement on the issue before the House rises or will we have to wait until the autumn?

Mr. Mellor: The hon. Gentleman refers to defence. The matter is being considered and a statement will be made when a proper conclusion is reached. I cannot say whether that will be before the House rises but I wanted hon. Members to know that the defence issue, which is unrelated to these fiscal matters, has the serious attention of Ministers.
I am sorry to give my hon. Friend the Member for Dover a somewhat dusty answer. It is important for these Matters to be ventilated, but in moving to a low corporation tax regime and away from capital allowances we are, in the longer term, doing the business man a great favour. We have allowed him to retain the resources to make his own investment decisions rather than distorting matters by a system of capital allowances. Under our regime it is the quality of the investment that matters and not the amount, which is the case under a regime based on capital allowances. Having properly ventilated the matter, I hope that my hon. Friend will agree to withdraw his new clause.

Mr. David Shaw: It is often said in the House that short debates are among the best, and this debate has given the issue a wide airing. I regret that I did not have access to Treasury counsel in drafting my new clause, but such is the problem of the Back Bencher in drafting detailed amendments. I would certainly have intended it to be only for new investment to assist industry at a time of recession. Therefore, I accept that the cost would probably be much higher than the clause intends.
The Chief Secretary produced figures to show a cost of £8 billion. He should be careful to separate the interest costs in terms of tax deferred from the actual cost of tax, because in the long term there is no loss of tax revenue. I notice that he stopped his example at year five. Had he gone on to year 10, the cost must be significantly reduced, and reducing towards zero.
However, I accept that the new clause as drafted is not perfect. When the economy is such that the Treasury counts every pound carefully, putting my new clause to the vote would be inappropriate. Therefore, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 10

DEVELOPER'S SELF-SUPPLY

.—(I) Schedule 6A to the Value Added Tax Act 1983 shall be amended as follows.

At the end of paragraph 6(2)(b) there is inserted—

"except that, if the supply is treated as made on or after 1st April 1991, the value of it shall be calculated so that, to the extent only that grants and other supplies were made to the developer before 1st April 1991, the tax payable in respect of those grants and other supplies shall be calculated as if the supply had taken place on 31st March 1991.".'.—[Dr. Marek]

Brought up, and read the First time.

Dr. Marek: I beg to move, That the clause be read a Second time.

Madam Deputy Speaker: With this it will be convenient to take new clause 36—VAT: Developer's self-supply (No. 2)—after paragraph 6(2) of Schedule 6A to the Value Added Tax Act 1983 there shall be added
6(2A) Where the supply is treated as made by sub-paragraph (1) above, on or after 1st April 1991, the value of that supply shall exclude the value of all grants and the value of all taxable supplies set out in sub-paragraph 2(a) and (b) above, where those supplies were made to the developer before 1st April 1991.
6(2B) Where sub-paragraph (2A) applies, the value of all grants and taxable supplies referred to in sub-paragraph (2)(a) and (b) and excluded from the value in sub-paragraph (1) by sub-paragraph (2A), shall be deemed to be supplied for the purposes of sub-paragraph (I) on 31st March 1991.".'.

Dr. Marek: The Opposition have tabled these new clauses to remedy a fault that has occurred as a result of the increase in value added tax from 15 to 17·5 per cent. in the last Budget. It may be for the convenience of the House if I cover a little of the background so that it can appreciate the aim of the clauses.
The European Court judgment in June 1988 did not cover building land, although it covered non-domestic buildings. The then Economic Secretary, the right hon. Member for St. Albans (Mr. Lilley), who is now Secretary of State for Trade and Industry, in the Committee that considered the Finance Bill in 1989—I remember the occasion well—decided to abolish land exemption once it was clear that, as a result of the European Court judgment, the Government would be required to tax new domestic buildings. As a result, the developer's self-supply charge provisions were born and are now paragraphs 5 and 6 of schedule 6A of the Value Added Tax Act 1983.
9 pm
Those paragraphs provide that, on completion of development, the self-supply charge is triggered and output tax is paid, based on the historic cost of land, together with the value of all goods and services. I have some quibbles about the historic costs of land which I believe should be on a different value, but that is neither here nor there in the debate on the new clauses. In practice, VAT is imposed only on the land element as goods and services output tax can be offset by an input tax rebate. The VAT levied on the charge may be treated as input tax subject, for example, to partial exemption and to the capital goods scheme provisions. However—and this is the crux of the problem—the increase in the VAT rate from 15 to 17·5 per cent. has given rise to an anomaly in cases where developers are exempt—for example, those


developing schools and hospitals—and where work on those projects has taken place on either side of the 1 April 1991 deadline, when VAT was increased.
The land cost will be subject to VAT at 17·5 per cent. if the self-supply charge is triggered after 1 April 1991, but so will the goods and services. That is fine if the service was performed on or after 1 April 1991, as input tax can be reclaimed at the same rate. However, that is not the case if the goods were delivered or the services were carried out before 1 April 1991. Then VAT can still be reclaimed, but only at 15 per cent., while output VAT has to be paid at 17·5 per cent.

Mr. Denzil Davies: This is extremely complicated and I do not understand it. However, my hon. Friend said that developers would benefit. What kind of developers does he mean? I hope that it is not nasty property developers.

Dr. Marek: I seek not to make any distinction between nice and nasty developers. It is simply a question of equity, and the equity has always been that any developer, as a result of the introduction of the self-supply regime, ought to be able to recover his input tax for goods and services, and then have to pay output tax when the self-supply charge is triggered. The problem is that, because VAT was increased to 17·5 per cent., the amount of output tax may be greater than the amount of input tax.
My right hon. Friend may also care to dwell on the fact that if a future Government decided to reduce VAT the amount of tax that could be recovered by developers would exceed the amount of tax that they had had to pay. That would cause a general uproar as it would be manifestly unfair. The Opposition believe that it is unfair that allowance should not be made for this problem—which was probably unforeseen when the Government decided to increase VAT only a few days before the Budget was delivered, or so we are given to understand—for developers whose goods and services straddle both sides of 1 April 1991.
I do not want to prolong the debate because I am aware of the many new clauses and amendments with which we must deal. That being so, I shall be concise.
What is the solution? Happily it is a straightforward one, and the answer is apportionment. The Opposition, ever wanting to please and to help the House, have tabled not one new clause but two. I invite the Government to take their pick. The two clauses are worded differently, but they seek to achieve the same object. I hope that one of them will be acceptable to the Government. That being so, I hope that the Minister will regard one of them favourably and will accept it.

The Minister of State, Treasury (Mrs. Gillian Shephard): I accept that the hon. Member for Wrexham (Dr. Marek) has a point, and I am grateful to him for drawing it to the Government's attention. I wish to help, but this is a hideously difficult subject. I understand that that is accepted by the right hon. Member for Llanelli (Mr. Davies).
The self-supply charge was introduced only in 1989, so it is not surprising that there may be some teething troubles. I think that I am right in saying that the developers who are subject to the charge are the only people who pay value added tax who have, or have had, no choice about their tax point, which to my mind is probably the nub of the matter.
I am sure that the hon. Member for Wrexham will understand that the new clauses are not quite right. I do not criticise him for that, because if one thing is clear it is that the self-supply charge is extremely complex. As the new clauses are drafted, they would apply a 15 per cent. rate of VAT to all land acquired before the Budget, no matter how far in the future the land comes to be developed. I am sure that that was not the hon. Gentleman's intention. It would make no more sense to do that than to say that land acquired before June 1979 should always be liable to VAT at 8 per cent., whenever it comes to be developed.
The new clauses would apply only to the change in the VAT rate that has just occurred. That may or may not be the intention of the hon. Member for Wrexham.

Dr. Marek: It is not the Opposition's intention that a VAT rate of 15 per cent. should be retained for land. If the VAT rate changes, the rate on land must change. I hope that my intervention clarifies the issue.

Mrs. Shephard: I thank the hon. Gentleman for that clarification. He will wish to know, however, that I am advised that there are other, more technical, problems with the drafting of the new clauses. As it happens, it would not be necessary to introduce primary legislation to amend the self-supply rules. The Government have the power under section 35 of the Value Added Tax Act 1983 to amend the rules by order. It would be sensible, of course, to take time to try to get these matters right.
If the House is content, I am prepared to consider the subject again, and to write to the hon. Member for Wrexham. I cannot give a commitment, but I am happy to say that if we can be convinced that it would be fair and reasonable to amend the self-supply provisions governing the construction element of the charge, if it proves technically possible to do so and if—this is important—that need not upset other relationships within the tax system, I would propose to bring forward an order. If for any reason we come to the conclusion that that could not be done, I undertake to explain that fully to the hon. Gentleman. I hope that on that basis he will be prepared to withdraw the new clause.

Mr. Denzil Davies: I am slightly worried about my Front-Bench colleagues. I hope that they are riot backsliding from the faith. A previous new clause was designed to support manufacturing industry, and my hon. Friend the Member for Wrexham (Dr. Marek) slightly—I do not know whether this is possible—poured cold water upon it. The new clause that is now before us seems to support the property industry, which is quite dominant in Britain and which has done well over the past 10 or 12 years. I know that it is facing some difficulties now, but I shall not weep if it has over-borrowed or geared too much—I think that "geared" is the vogue word for borrowing. That is a matter for the industry. The Minister has promised some action, as I understand it, and if the new clause is refined and accepted it will support the property industry.
I have nothing against the property industry, but I wonder which pressure group briefed my hon. Friend. Whichever group it was, it did not draft the new clause very well according to the Minister, but it must have been a group representing property interests. I am rather worried. I read in the newspapers about the debates on Lloyd's in the Standing Committee on the Finance Bill.
Clearly, we do not believe everything that we read in the newspapers, but I hope that my hon. Friends on the Front Bench are not accepting the new age—or the new vogue—of market-based economies which, we are told, will solve our problems in the 1990s. I should have hoped that my hon. Friend would give more support to the new clause that favoured the manufacturing industry and that he would not have been so keen to support this new clause which, as I understand it, is aimed at and will eventually give some money to property interests.

Mr. Den Dover: I support the new clause. I do not agree with the right hon. Member for Llanelli (Mr. Davies) that there are good and bad property developers and that to chase and make a profit is necessarily bad in itself. Property development brings enormous investment into this country across the range of property—industrial, residential and commercial. It is a high-risk industry and, although profits have been made, there are also enormous losses and high interest charges, despite the reductions of recent months.
I welcome the attitude of the Opposition Front Bench in trying to create circumstances that are fairer for the property industry, and I must declare my interest. I am delighted that the Opposition are trying to correct an anomaly. I also welcome the Minister's constructive response. In addition to some of the changes that she is thinking of, I ask her to simplify the legislation. I also ask her and the Inland Revenue to be sensible about imposing misdeclaration penalties. The Chancellor mentioned that in the Budget, but self-supply is a legislative minefield for construction, development, land and buildings and I hope that the Minister will try to simplify the taxation regime in her future efforts.

Sir Geoffrey Finsberg: I wish to probe what the Minister of State, Treasury said. She mentioned three possible scenarios adding to each the phrase "if technically possible". She will know that I am not wholly happy at the way in which Ministers are forced to accept the views of officials who deal with value added tax. For example, they—and not Ministers—have decided that VAT is to be imposed on Jaffa cakes, because they believe that they are not cakes, but biscuits. Ministers have no control over that. I ask my hon. Friend to take the decisions and not to let the mindless bureaucrats in Customs and Excise impose this decision on her.

Dr. Marek: I hope that my right hon. Friend the Member for Llanelli (Mr. Davies) will accept that we are passionately in favour of British manufacturing industry and of providing the prosperity that the country needs to survive, but I hope that he will also accept that we are equally as passionate about trying to be fair. From what the Minister says, I hope that we can leave the matter in her hands and that if anything can be done, she will see that it is done.

Mrs. Gillian Shephard: It would be a pity not to mention the domestic dispute on the Opposition Front Bench—let us hope that it simmers elsewhere. I thank my hon. Friends for their contributions and I assure my hon. Friend the Member for Hampstead and Highgate (Sir G. Finsberg) that Jaffa cakes are never far from my mind.

Dr. Marek: I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 13

TAX EXEMPTIONS FOR CERTAIN SPORTING AND RECREATIONAL ASSOCIATIONS

'(1) Where—
(a) an Association which has as its object the encouragement, development and governance on a national level of any sport or other form of recreational activity (or which has as its object the representation of such Associations) is approved for the purposes of this section by the Secretary of State; and
(b) the memorandum of association or other similar instrument regulating the functions of the Association precludes the direct or indirect payment of transfer to any of its members of any of its income or property by way of dividend, gift, division, bonus or otherwise howsoever by way of profit,

there shall, on a claim in that behalf to the Board, be allowed in the case of the association—
(i) exemption from tax in respect of income, and
(ii) exemption from tax in respect of chargeable gains.

(2) In Sections 338 and 339 of the Income and Corporation Taxes Act 1988, "qualifying donation" shall include a payment under a disposition or convenant made by a company in favour of an Association approved for the purposes of this section under subsection (1) above.

(3) The conditions specified in paragraph (b) of subsection (i) above shall not be deemed not to be complied with in the case of any Association by reason only that the memorandum or other similar instrument regulating its functions does not prevent the payment to its members of reasonable remuneration for goods or facilities supplied, or for services rendered, of reasonable interest for money lent, or of reasonable rent for any premises.'.—[Ms. Hoey.]

Brought up, and read the First time.

Ms. Kate Hoey: I beg to move, That the clause be read a Second time.
I feel like saying, "Here we go again", because this issue comes up year after year. New clause 13 narrows the focus of our attempts to meet points that have been made in the past, when debating Finance Bills in Committee and on the Floor of the House, in arguing against exempting governing bodies of sport from corporation tax.
The amendment refers specifically to national governing bodies, and does not relate to sports clubs or to any organisations other than governing bodies. It is important to stress that, because, in the past, Ministers asked whether it was our intention also to exempt tiddlywinks clubs, and so on.
Ultimately, I should like to go further and to examine the business rate burden on sports clubs and all the other problems that they encounter. However, tonight's debate concerns only exemption for national governing bodies. The new clause seeks also to avoid any involvement in charity law, because—as was said by the hon. Member for Berwick-upon-Tweed (Mr. Beith) in Committee—attempts to make legislative changes in that regard can be a nightmare.
After consulting national governing bodies and the Central Council of Physical Recreation, we devised a new clause that will allow the Secretary of State to decide which


governing bodies would benefit. In the event of any dispute, and if the CCPR's ruling proved unacceptable, the Secretary of State would have the final say.
The new clause is aimed at boosting the morale of sport and at ensuring that the money raised by governing bodies in different ways can all be used to benefit sport. At present, some of it must be paid to the Government in corporation tax. Sometimes the amount is small, but sometimes the sum involved is fairly large.
The Minister and other hon. Members may dispute the cost of such a change to the Exchequer. We calculate that it will be in the region of £10 million—which, in the context of the Treasury's national revenues, is not a large figure. The amount saved in the case of the Amateur Swimming Association, for example, would be £15,000. Why should that organisation be required to pay that sum when the moneys that it raises do not profit any individual but are used to fund swimming?
A large proportion of the profits from next autumn's forthcoming rugby union world cup will go in corporation tax, but no other country competing in that event will be similarly taxed.
The corporation tax paid by the British Olympic Association is raised largely through voluntary effort and donations. People work extremely hard to ensure that our Olympic team has the necessary support. It is quite a large amount—some £2 million—but it does not seem so much in the overall context of the sum that is taken from sport.
The Lawn Tennis Association pays about £1 million. I am not talking about Wimbledon; I am talking about the need to promote and improve grassroots tennis for young people, so that we can produce some future Wimbledon champions.
The Minister may say that the money that has just been taken from the football pools will be given back to sport. In the past, the Government have always said that they want people to be able to decide for themselves how to spend their money. We shall debate later the way in which the new sports trust has been set up; let me say now, however, that we should not take with one hand and, with the other, try to give indirectly, in a different way. That would not enable the governing bodies to spend the money in the way that they consider best to develop sporting activities.
The Minister may feel that some of those bodies would not spend the money in the way in which the Government would like them to spend it. My new clause, however, would not preclude the Chancellor of the Exchequer from deciding on a criterion that might exempt, for example, the Lawn Tennis Association, on condition that the resulting savings were spent in a way that would improve tennis at a basic level—on improving coaching, for instance. There is no reason why that should not be defined, if the Government work closely with sporting bodies.
Last autumn I went to see the Financial Secretary, along with a cross-section of the governing bodies. The results were disappointing. We were received quite well; the Financial Secretary seemed to be listening to what we said, and it appeared from some of the questions that he asked—some of which were followed up through the Central Council of Physical Recreation—that the door was beginning to open. Informal conversations with the Minister for Sport suggested that he felt that a concession would be made. Then, just before the Budget, we suddenly heard that nothing would be given.
I ask the Treasury to reconsider. The amount concerned is not huge, and it would boost morale to a significant extent, allowing the governing bodies to expand the self-help that they are already carrying out.
After all the work that has gone into Sheffield, the world student games are going ahead, and we shall try very hard to get the Olympic games to Manchester. A boost for the governing bodies would convince people that the Government and Members of Parliament care about sport, rather than being interested only when the finale of a tournament is taking place, involving a specific team or event. Many Ministers and other Members support such events, but I am thinking of the ordinary, day-to-day work that is done by people who really care about sport at grassroots level. I hope that the House will support the new clause.

Mr. Peter Hain: I am delighted to support new clause 13, which was moved by my hon. Friend the Member for Vauxhall (Ms. Hoey), who is widely respected in the sporting world for her expertise and diligence. She is one of sport's finest friends.
The Government are keen on instructing people to stand on their own two feet. However, in respect of corporation tax for sport, the Government are clobbering sport with a late tackle on the referee's blind side. According to the Sports Council, sport generates an income to the Treasury that is five times the figure that the Government spend on sport. It is not as if sport is freeloading from the Treasury's coffers. It is a net contributor many times over to the provision of its own general funding across the country.
The present situation is full of anomalies. Some sports such as cricket are subject to look-through status whereby the national governing bodies are not subject to taxation, as is rugby. The burden falls on clubs and that is what the new clause seeks to redress.
Having referred to rugby, I want to use that sport to make my case. Of the 16 countries involved in the rugby world cup this autumn, only England, Scotland and Wales have substantial tax assessments against them. One wonders whether that is part of the reason why our rugby teams, particularly over the past weekend, have not been doing brilliantly in international terms. That must be a contributory factor.
Perhaps I should dwell for a moment on the problems facing Wales. I hesitate to do that, although my friend Ron Waldron is an excellent coach who has coached Neath to great success over the years. However, after Wales were defeated 71 points to 8 by New South Wales, I searched for the name of the Economic Secretary to the Treasury among those who scored the nine tries against Wales. The taxation that the Government are exacting from the Welsh Rugby Union is punitive to say the least. The WRU must pay VAT which is currently projected at £440,000 for this year; it must also pay an exorbitant business rate bill of £220,000 this year. On top of that, the WRU must also pay corporation tax of £330,000.
The WRU is not a profit-making organisation. None of its members is seeking to join Lloyd's. They do not expect dividends or benefits from the income generated by the sport. There is no personal gain in rugby in Wales or elsewhere in the United Kingdom. Why should the WRU be subjected to corporation tax in this anomalous and punitive fashion?
In effect, the WRU's income from international matches is its sole source of surpluses. That income is severely raided by the Treasury through corporation tax. As a result of that, there is underprovision and the WRU is unable to invest the resources that it wants to invest in local clubs. Given the way in which the game in Wales has slid over the past few years, that is a real issue.
I hope that Conservative Members and, preferably, Treasury Ministers will address the crisis facing our school and youth sports. It is not surprising that British sports men and women face problems in competing successfully abroad in rugby and other sports, given the crisis in school sport.
I have two young sons. If it were not for the diligence of a few amateur voluntary helpers outside the school, the facilities for them would not be the same. The Government have destroyed teachers' confidence and morale and their commitment and willingness to work all hours under the sun for little or no reward while their professionalism was attacked from left, right and centre. That has created a crisis at school level whereby it is difficult to get the training, support and resourcing that school sport so desperately needs.
For years, schools in Wales were virtual factories for rugby. Now the burden in youth rugby falls on local clubs. The WRU has to sponsor and invest in those clubs. The £330,000 that the Treasury is nicking—if I may use that colloquialism—from the WRU's income this year is preventing it from investing that money in the provision of youth sport and club sport, which are the backbone of the game in Wales and throughout the United Kingdom.
9.30 pm
We must consider how rugby is organised in Wales. It is organised by volunteers who are not out for personal gain. They put in long hours with no reward and with virtually no support from the Government. Indeed, there is an attack on their resources. My local club, Resolven rugby football club, suffers from the problem of lack of Government support and it has to pay exorbitant water charges. A new pipe has been put in for some new showers. As a result of the way in which water charges have catapulted upwards since privatisation, the connection charge for a 1-ft pipe connecting one pipe to another is £850, compared with the £30 which it would have cost when Welsh Water was under public ownership a couple of years ago. The club faces business rates, and exorbitant and punitive water charges. Those involved in the club have no personal gain and are determined to provide the best possible facilities for young people in particular. Surely with the rising rate in youth crime—

Mr. Robert Hayward: I ask my question as, I think, the only qualified rugby referee in the House. Will the hon. Gentleman concede that he did far more damage to the sport of rugby than the Government and the proposal on corporation tax ever have?

Mr. Hain: I was wondering when such a constructive intervention would be made by a Conservative Member. The changes now occurring in rugby and in sport generally in South Africa are a vindication of the strategy that many of us pursued of forcing those changes over the years.
The hon. Gentleman's intervention was an attempt to divert us from the central point. I hope that he does not

belittle the real issue which I sought to address—the burden under which local rugby clubs work and suffer, which has been imposed by the Government's financial regime. I sought to make an important point about one of the real problems that we face as youth crime virtually gets out of hand and as young people roam listlessly round the streets because they have nothing to do. With a small concession by the Government, we could assist the Welsh Rugby Union—and this applies to other sports as well—and its local affiliates to provide the resourcing and investment necessary to inspire an interest and sense of enthusiasm in those young people.
My hon. Friend the Member for Vauxhall reviewed the way in which the debate has progressed over the years. The new clause is different from the one moved last year and the one moved the year before. It does not seek charitable status for national governing bodies, as has previously been sought.
Equally important—I hope that the Economic Secretary will address this point in his reply—is the fact that the new clause gives the Secretary of State considerable discretion to determine what is or is not an eligible sport. On 13 April 1991, the Financial Secretary wrote to the secretary of the Welsh Rugby Union:
There is, however, no agreed definition of what constitutes a sport".
Frankly, that is weak. I invite the Economic Secretary or the Financial Secretary to talk to the Neath pack and to ask its members whether they are involved in a sport or are playing at model making for the Treasury. What is and what is not a sport is quite clear to those involved in rugby or any other sport in the United Kingdom.
If there is any doubt, the new clause provides the Secretary of State with that discretion and gives him the opportunity to draw a ring fence around legitimate sports to ensure that nobody can get away with a slipshod definition of sport. I fail to understand why all those mandarins and officials at the Treasury, who, with the parliamentary draftsmen, spend long hours devising clauses and regulations to ensure that people cannot escape the scope of the definitions relating to taxation and the financial sector, cannot provide a suitable definition of sport when the thousands, if not millions, of people who enjoy sport every day of the week could do so. Or is this an excuse so that the Government do not have to act to give relief, not only to rugby in Wales and elsewhere but to sport in general?
Finally, the cost of implementing the provisions would be minimal. It has been estimated by those in the sporting world who are expert at such things as being between £10 million and £12 million, which is nothing compared with the £2 billion that the Exchequer takes from sport every year.
The new clause provides a small concession, but, properly directed and targeted—to use one of the Government's favourite words—it could give considerable support to those sports, and especially to rugby, which desperately need it to provide them with the resources to make the investment that they could not make otherwise.

Mr. Menzies Campbell: The House will want to record its admiration for the hon. Member for Neath (Mr. Hain) for coming here, so soon after the events in Australia, to advocate the cause of Welsh rugby. His anxiety to ensure that yet more funds are channelled into the cause of Welsh rugby may have been directly


stimulated or provoked by those events in Australia. Hon. Members representing English constituencies should not feel any great sense of comfort, because the result obtained by their team on the same day was hardly any more comforting.
This debate has become something of an annual fixture in the sporting calendar. It is noteworthy that two former Ministers for Sport are in their places. I hope that one or other of them may feel compelled to catch your eye, Mr. Deputy Speaker. Three years ago, in a useful debate on this subject, the then Economic Secretary, now catapulted to fame as Chancellor of the Exchequer, made a sympathetic response to what was thought to be a constructive debate. To some extent, the form of the new clause that we are debating is less relevant than the principle that it seeks to establish. Different amendments, in different forms, have been tried over the years. Last year, in the Law Reform (Miscellaneous Provisions)(Scotland) Act 1990, which one may think an unlikely vehicle, we tried to persuade the Government to accept that sport in Scotland at least should have charitable status. That must have followed too hard upon the success of the Scottish team at Murrayfield, when they won the grand slam, to succeed in persuading everyone on the Treasury Bench that it was necessarily a good idea.
The issue comes to this—to what extent are the Government willing to recognise the importance of sport in many people's lives and its contribution to health? That is an element of the work of the governing bodies of the sports associations to which insufficient regard has been ascribed until now. It is also noteworthy that the philosophy of the sports councils has become less to direct governing bodies and more to regard them as independent bodies with more devolved responsibilities and powers. If that is so, surely it would be only right and proper to release to governing bodies a far greater level of resources than they presently enjoy.
As the hon. Member for Neath hinted, since the disruption in schools both north and south of the border, the opportunities for individuals to take part in school sport have been substantially reduced. That is why the Scottish Sports Council, under the prompting of the Minister of State, Scottish Office, who has responsibility for sport in Scotland and provided the funds, has launched a campaign the purpose of which is to fill the gap that has been created. That gap must be filled by the governing bodies of sport.
Some governing bodies are extremely professionally run. They have paid administrators and substantial staffs. They are sophisticated about attracting sponsorship. They know their way around government. They know how to lobby. But in many cases governing bodies are run by unpaid amateurs who devote their whole life to their particular sport and often run the affairs of the United Kingdom national sporting association from a spare room at the top of their house. In many cases the effort of a governing body is entirely amateur. If that effort was not produced in the committed and energetic way in which it is, those governing bodies would either not exist or at least would operate at a much lower level of activity than at present.
The issue is not so much the precise substance of the new clause. I have looked back at the Official Report of similar debates on previous occasions and I have no doubt that the Treasury Bench will take refuge in some didactic, nit-picking point about the form of the new clause.

However, the issue is one of principle. How far do the Government recognise the contribution of sport? The Prime Minister seems to be an enthusiast for sport. The Minister for Sport appears to be someone whose red rose may not be in the right place, but whose heart is certainly in the right place.
This is an opportunity for the Government to recognise and acknowledge the extraordinary contribution that sport makes and the tremendous efforts of unpaid individuals who work, as the word "amateur" necessarily implies, for the love of their sport. How much more redoubled will their efforts be if the Government say generously this evening, "You no longer have to pay corporation tax"?.

Mr. Richard Tracey: I rise to speak briefly particularly in response to the last few sentences uttered by the hon. and learned Member for Fife, North-East (Mr. Campbell). As he mentioned, I and my hon. Friend the Member for Dumfries (Sir H. Monro), as former Sports Ministers, have subscribed very much to the principle of new clause 13. As he said, two or three years ago we received a favourable and sympathetic response from my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the present Chancellor of the Exchequer, who was then a junior Minister at the Treasury. That response was the result of several years of lobbying Treasury Ministers. We lobbied a whole series of my right hon. and hon. Friends who occupied various positions at the Treasury. They received us courteously and, indeed, gave us good reason to believe that one of these years the philosophy behind the new clause might just be accepted.
This year, as you know, Mr. Speaker, this new clause has been tabled by the hon. Members for Vauxhall (Ms. Hoey) and for Neath (Mr. Hain). At an even lower scale in terms of cost, new clause 8, which unfortunately you were not able to select, was tabled by my hon. Friend the Member for Dover (Mr. Shaw), the hon. Member for Stalybridge and Hyde (Mr. Pendry) and me. It called for some tax relief for the British Olympic Association—one specific sporting body which should most certainly receive some tax relief in line with every other Olympic committee in the world. I want my hon. Friend the Economic Secretary to the Treasury to know that this philosophy is accepted across the parties in the House. It would have been wrong for me not to put that on the record tonight. In his response, will he give us some idea of which direction we should be going to achieve tax relief for sport?
As I said, we have presented the minimum position with the British Olympic Association. The new clause tabled by the Opposition asks for rather more. Surely the time has now come for the Treasury to give some indication of when we can hope that sport's governing bodies can gain tax relief.

Mr. Maples: Before my hon. Friend the Member for Surbiton (Mr. Tracey) intervened, I was going to say that it was nice for an Englishman to get a word in, if only to remind the House that we do not have to go quite so far back in history to find an occasion when we won the grand slam. It is not surprising that if one wanted an example of a sport in a terrible mess, one would pick the Welsh Rugby Union. If one is to chuck public money around, even the Labour party now believes in throwing money at winners, not losers.
This is a difficult problem to solve. There is no easy solution. The fact that over the years people have tried to find a solution but none has been found shows how difficult it is. The relief proposed by the new clause is both extremely generous and wide ranging. The new clause would give complete exemption from corporation tax to any recreational association organised nationally which did not distribute its profit. Compare that with the current position where the only bodies wholly exempt from corporation tax are local authorities and health service bodies. Even the exemption enjoyed by charities is conditional on income being applied solely to charitable purposes. There is no such restriction in the new clause.
One must realise that such an exemption would confer an unfair advantage on these bodies. Where, for example, they sold sports equipment or refreshments, they might well be in direct competition with other local traders who do not enjoy similar tax privileges. There is no definition of "sport" or "recreational", and it would be almost impossible to devise a satisfactory one.
It is hard to see any good reason for granting an exemption to sport but not to other equally worthwhile activities. Therefore, any such relief would create considerable pressure for an extension to other bodies and could give rise to endless disputes about whether particular bodies or activities should qualify.
The new clause goes further than one might have expected in containing provisions designed to allow tax relief on covenanted donations or on donations under gift aid to such bodies. Relief on that sort of payment is designed to benefit charities. It is well established that sport is not a charitable activity. Charities would be deeply concerned at a proposal which threatened to divert money from them to new bodies.
The Government have considered possible reliefs for sports or sport's governing bodies several times, but it has been difficult to identify an acceptable proposal. Any exception would be arbitrary and difficult to confine, and it would not be possible to accept the new clause. I understand the problem, but there is no acceptable or easy solution to it, although we have looked hard for one.
If it is any consolation, the sports and arts foundation, which has been set up in association with this Budget, will provide valuable help for sport. We expect it to distribute some £250 million over the next four years. At least two thirds of that must go to sport, so there should be £160 million or £170 million from that, as well as all the other resources going into sport. I am sorry that it is not possible for the Government to accept the new clause.

Ms. Hoey: I rather expected that response from the Economic Secretary to the Treasury, because, as the hon. and learned Member for Fife, North-East (Mr. Campbell) suggested, it was unlikely that we would hear anything new. We have simply had a repetition of what has been said, ad nauseam, in Committee after Committee, year after year. I am disappointed that the Minister said absolutely nothing new. He continues to say that the Government have tried, but that they cannot find a way round the problem. However, if Back-Bench Members can come up, year after year, with new ways in which to tackle the problem, how many more ways do we have to find

before the Government, with all their machinery of civil servants and support, can find a mechanism to accept the principle?
I should have been happy if the Minister had even accepted the principle and said that the Government would like to find a way in which to provide money. However, there seems to be no give from the Government and, therefore, I want to press the new clause to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 68, Noes 252.

Division No. 210]
[9.50 pm


AYES


Abbott, Ms Diane
McFall, John


Barnes, Harry (Derbyshire NE)
McKay, Allen (Barnsley West)


Bellotti, David
Madden, Max


Benn, Rt Hon Tony
Mahon, Mrs Alice


Blunkett, David
Marshall, Jim (Leicester S)


Caborn, Richard
Meale, Alan


Callaghan, Jim
Michie, Bill (Sheffield Heeley)


Campbell, Menzies (Fife NE)
Mitchell, Austin (G't Grimsby)


Campbell-Savours, D. N.
Morley, Elliot


Canavan, Dennis
Nellist, Dave


Carlile, Alex (Mont'g)
Paisley, Rev Ian


Carr, Michael
Patchett, Terry


Cohen, Harry
Pendry, Tom


Cousins, Jim
Pike, Peter L.


Cox, Tom
Powell, Ray (Ogmore)


Cryer, Bob
Primarolo, Dawn


Dalyell, Tarn
Redmond, Martin


Dixon, Don
Robinson, Peter (Belfast E)


Dunnachie, Jimmy
Rooney, Terence


Eadie, Alexander
Salmond, Alex


Eastham, Ken
Skinner, Dennis


Fearn, Ronald
Spearing, Nigel


Fyfe, Maria
Steel, Rt Hon Sir David


Godman, Dr Norman A.
Taylor, Mrs Ann (Dewsbury)


Gordon, Mildred
Trimble, David


Graham, Thomas
Wallace, James


Grocott, Bruce
Wardell, Gareth (Gower)


Haynes, Frank
Welsh, Michael (Doncaster N)


Hood, Jimmy
Wigley, Dafydd


Howell, Rt Hon D. (S'heath)
Wise, Mrs Audrey


Hughes, John (Coventry NE)
Wray, Jimmy


Illsley, Eric
Young, David (Bolton SE)


Janner, Greville



Leighton, Ron
Tellers for the Ayes:


Lewis, Terry
Ms. Kate Hoey and Mr. Peter Hain.


Loyden, Eddie





NOES


Aitken, Jonathan
Bright, Graham


Alison, Rt Hon Michael
Brown, Michael (Brigg &amp; Cl't's)


Allason, Rupert
Browne, John (Winchester)


Amess, David
Buck, Sir Antony


Amos, Alan
Budgen, Nicholas


Arbuthnot, James
Burns, Simon


Arnold, Sir Thomas
Butler, Chris


Atkinson, David
Butterfill, John


Baker, Rt Hon K. (Mole Valley)
Carrington, Matthew


Baker, Nicholas (Dorset N)
Cash, William


Baldry, Tony
Chalker, Rt Hon Mrs Lynda


Banks, Robert (Harrogate)
Chapman, Sydney


Beaumont-Dark, Anthony
Chope, Christopher


Bellingham, Henry
Clark, Dr Michael (Rochford)


Bennett, Nicholas (Pembroke)
Clarke, Rt Hon K. (Rushcliffe)


Benyon, W.
Colvin, Michael


Bevan, David Gilroy
Coombs, Anthony (Wyre F'rest)


Blackburn, Dr John G.
Coombs, Simon (Swindon)


Blaker, Rt Hon Sir Peter
Cope, Rt Hon Sir John


Boscawen, Hon Robert
Couchman, James


Boswell, Tim
Cran, James


Bottomley, Mrs Virginia
Currie, Mrs Edwina


Bowden, Gerald (Dulwich)
Davis, David (Boothferry)


Bowis, John
Day, Stephen


Brandon-Bravo, Martin
Devlin, Tim


Brazier, Julian
Dicks, Terry






Dorrell, Stephen
Lee, John (Pendle)


Douglas-Hamilton, Lord James
Lennox-Boyd, Hon Mark


Durant, Sir Anthony
Lester, Jim (Broxtowe)


Emery, Sir Peter
Lilley, Rt Hon Peter


Evennett, David
Lloyd, Sir Ian (Havant)


Fallon, Michael
Lloyd, Peter (Fareham)


Fenner, Dame Peggy
Lord, Michael


Field, Barry (Isle of Wight)
Luce, Rt Hon Sir Richard


Finsberg, Sir Geoffrey
McCrindle, Sir Robert


Fishburn, John Dudley
MacGregor, Rt Hon John


Fookes, Dame Janet
MacKay, Andrew (E Berkshire)


Forman, Nigel
Maclean, David


Forsyth, Michael (Stirling)
McNair-Wilson, Sir Michael


Forth, Eric
McNair-Wilson, Sir Patrick


Fox, Sir Marcus
Malins, Humfrey


Franks, Cecil
Mans, Keith


Freeman, Roger
Maples, John


French, Douglas
Marlow, Tony


Fry, Peter
Marshall, Sir Michael (Arundel)


Gale, Roger
Martin, David (Portsmouth S)


Gardiner, Sir George
Mates, Michael


Garel-Jones, Tristan
Maude, Hon Francis


Gill, Christopher
Mawhinney, Dr Brian


Gilmour, Rt Hon Sir Ian
Maxwell-Hyslop, Robin


Glyn, Dr Sir Alan
Mayhew, Rt Hon Sir Patrick


Goodhart, Sir Philip
Mellor, Rt Hon David


Goodlad, Alastair
Meyer, Sir Anthony


Goodson-Wickes, Dr Charles
Miller, Sir Hal


Gorman, Mrs Teresa
Mills, Iain


Gorst, John
Mitchell, Andrew (Gedling)


Greenway, John (Ryedale)
Mitchell, Sir David


Gregory, Conal
Moate, Roger


Griffiths, Sir Eldon (Bury St E')
Monro, Sir Hector


Griffiths, Peter (Portsmouth N)
Montgomery, Sir Fergus


Grist, Ian
Morris, M (N'hampton S)


Ground, Patrick
Moss, Malcolm


Grylls, Michael
Moynihan, Hon Colin


Hague, William
Neale, Sir Gerrard


Hamilton, Neil (Tatton)
Needham, Richard


Hanley, Jeremy
Neubert, Sir Michael


Hannam, John
Nicholls, Patrick


Hargreaves, A. (B'ham H'll Gr')
Nicholson, David (Taunton)


Hargreaves, Ken (Hyndburn)
Norris, Steve


Harris, David
Onslow, Rt Hon Cranley


Hawkins, Christopher
Oppenheim, Phillip


Hayes, Jerry
Page, Richard


Hayward, Robert
Paice, James


Heathcoat-Amory, David
Patnick, Irvine


Hicks, Mrs Maureen (Wolv' NE)
Patten, Rt Hon Chris (Bath)


Hicks, Robert (Cornwall SE)
Patten, Rt Hon John


Hill, James
Pawsey, James


Hind, Kenneth
Peacock, Mrs Elizabeth


Holt, Richard
Porter, Barry (Wirral S)


Hordern, Sir Peter
Porter, David (Waveney)


Howard, Rt Hon Michael
Rattan, Keith


Howarth, Alan (Strat'd-on-A)
Raison, Rt Hon Sir Timothy


Howarth, G. (Cannock &amp; B'wd)
Rathbone, Tim


Howell, Rt Hon David (G'dford)
Riddick, Graham


Hughes, Robert G. (Harrow W)
Ridsdale, Sir Julian


Hunt, Sir John (Ravensbourne)
Rifkind, Rt Hon Malcolm


Hunter, Andrew
Roberts, Rt Hon Sir Wyn


Irvine, Michael
Rossi, Sir Hugh


Irving, Sir Charles
Rowe, Andrew


Jack, Michael
Rumbold, Rt Hon Mrs Angela


Jackson, Robert
Ryder, Rt Hon Richard


Janman, Tim
Sackville, Hon Tom


Jessel, Toby
Sayeed, Jonathan


Jones, Gwilym (Cardiff N)
Scott, Rt Hon Nicholas


Jones, Robert B (Herts W)
Shaw, David (Dover)


Jopling, Rt Hon Michael
Shaw, Sir Giles (Pudsey)


Kellett-Bowman, Dame Elaine
Shaw, Sir Michael (Scarb')


Kilfedder, James
Shelton, Sir William


King, Roger (B'ham N'thfield)
Shephard, Mrs G. (Norfolk SW)


Kirkhope, Timothy
Shepherd, Colin (Hereford)


Knapman, Roger
Sims, Roger


Knight, Greg (Derby North)
Skeet, Sir Trevor


Knight, Dame Jill (Edgbaston)
Smith, Sir Dudley (Warwick)


Lang, Rt Hon Ian
Smith, Tim (Beaconsfield)


Latham, Michael
Speed, Keith


Lawrence, Ivan
Speller, Tony





Spicer, Sir Jim (Dorset W)
Walden, George


Squire, Robin
Walker, Bill (T'side North)


Stanbrook, Ivor
Waller, Gary


Stanley, Rt Hon Sir John
Ward, John


Stern, Michael
Wardle, Charles (Bexhill)


Stevens, Lewis
Watts, John


Stewart, Andy (Sherwood)
Wells, Bowen


Stewart, Rt Hon Sir Ian
Wheeler, Sir John


Summerson, Hugo
Whitney, Ray


Taylor, Ian (Esher)
Widdecombe, Ann


Taylor, Sir Teddy
Wiggin, Jerry


Tebbit, Rt Hon Norman
Wilkinson, John


Thompson, D. (Calder Valley)
Wilshire, David


Thompson, Patrick (Norwich N)
Winterton, Mrs Ann


Thorne, Neil
Winterton, Nicholas


Thurnham, Peter
Wolfson, Mark


Townend, John (Bridlington)
Wood, Timothy


Townsend, Cyril D. (B'heath)
Yeo, Tim


Tredinnick, David



Trippier, David
Tellers for the Noes:


Trotter, Neville
Mr. David Lightbown, and Mr. John M. Taylor.


Viggers, Peter



Wakeham, Rt Hon John

Question accordingly negatived.

New Clause 15

FINANCING OF BRITISH FILMS UNDER BUSINESS EXPANSION SCHEME

'Where a company carrying on a trade qualifying under section 297 of the Taxes Act 1988 is engaged throughout the relevant period (for the purposes of that section) in the production of relevant films within the meaning of section 3(7) of the Films Act 1985, subsections (1) and (4) of section 290A of the Taxes Act 1988 (restriction of relief under business expansion scheme where amounts raised exceed permitted maximum) shall have effect as if for the amount there specified there were substituted £5 million.'.—[Sir Anthony Durant.]

Brought up, and read the First time.

Sir Anthony Durant: I beg to move, That the clause be read a Second time.
I begin by declaring an interest: I am the chairman of the Back-Bench committee on the film industry, which is why I am moving the new clause.
The new clause seeks to exempt film companies from the upper limit for tax relief in the business expansion scheme. The current limit of £750,000 is inadequate for would-be investors in film production—the average cost for a medium-budget film is closer to £5 million. The new clause aims to make it easier and more attractive to invest in British films. That is an urgent need. Investment in our film industry has slumped badly.
Film is increasing in importance—there were about 100 million attendances at the cinema last year. People are watching films on television, satellite broadcasts and videos, both bought and rented. In the past 10 years, expenditure on video alone increased from less than £100 million a year to more than £1,000 million a year.
The British film industry has expertise and creative talent. Blockbusters such as the "Indiana Jones" trilogy and "Batman" were made in this country with largely British crews and "The Last Emperor" was written and produced by British talent. But because there is no finance and investment from the United Kingdom the profits from those films returned to the countries which put up the money.
The British film industry is too small to compete effectively with our European rivals. The decline in investment has, of course, affected production levels. Last


year fewer than 30 films were made here and that total is set to go down still further this year. This low level of production does not provide enough throughput for an industry with a high risk factor, uncertain returns and high unit costs.
The industry comprises many small production companies, each incurring development costs without economies of scale, trying to produce prototypes for an unpredictable market. Sustained commercial success depends on being able to produce a continuing flow of films over a wide range of styles and audience appeal, so that the few successes pay for the ones which do not cover their costs. Other countries with small domestic markets bridge the gap with a range of subsidies, fiscal incentives and investment schemes which ensure a reasonable product flow and create a mass of film activity. There is therefore an overwhelming case for some form of Government action through tax incentives.
The stakes are high. Film is a key British industry with the ability to create products which can succeed in the European market place and can reach across the Atlantic to the American market. After 1992, the single European market will be larger than the US market and Britain will need to be well placed to exploit the opportunity. Presently, the United Kingdom cannot participate in European co-productions because we have no money to bring to the negotiating table. However, given that success often depends on selling one's film to the Americans, we have the advantage of language which should make the United Kingdom a natural partner in most European co-productions. We have the entrepreneurial and creative talent, the facilities and the commitment to make the industry successful. We can be certain that the film industry has the potential to compete effectively in Europe and in the USA. It could be as important to the United Kingdom's economy as Hollywood is to the US Exchequer.
The amendment is a simple but effective step which the Government could take to assist and stimulate the industry. It is one of the suggestions that arose from the former Prime Minister's working party following the meeting at No. 10 Downing street. I shall listen with interest to the Financial Secretary's response to my new clause.

Mr. Tom Clarke: I support the new clause which the hon. Member for Reading, West (Sir A. Durant) so eloquently addressed. This is a crucial time for the film industry and the new clause would ease and encourage the industry. However, I think that the hon. Gentleman would be the first to concede that the new clause could be regarded only as a first step.
The new clause appears not a minute too soon. My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) and I served on the Standing Committee dealing with what is now the Films Act 1985. That followed a declaration by the present Home Secretary, at that time one of the many Ministers responsible for films at the Department of Trade and Industry, who said in responding to an Adjournment debate that the Act would lead to the renaissance of the British film industry. We have not seen a renaissance, quite the reverse.
Last year's Downing street seminar was regarded by many as highly successful. It is a great pity that it has not

been followed up. The Minister may have some more information for us this evening. There were high hopes at that time, encouraged by the right hon. Member for Finchley (Mrs. Thatcher), but since then there has been little encouragement for the British film industry.
It is important that we address these problems because we have seen the industry weaken badly. In 1985, £272 million was invested, but in 1989 it was only £79 million. No industry can withstand that lack of investment, of training and of opportunity. This was once a great industry, and it is an industry that still offers enormous potential. In many ways The Observer yesterday told us a great deal. It said that there is to be a new version of the film "Wuthering Heights". This was given enormous prominence in that such a film would boost the British film industry. That is splendid news. We all welcome it, but it is a sad reflection on the state of the industry and it shows how little we have achieved and how few films there have been that a remake is greeted with the excitement that The Observer understandably thought was appropriate. It said:
Paramount's decision is the most important for the British film industry for many years.
However, a great deal more needs to be done. Scotland also has reason to be worried, for only one feature-length film has been made there in the past 18 months—"Tickets for the Zoo" by Brian Crumlish. It is the only Scottish film to be shown at the Edinburgh film festival.
I hope that, if this worthy new clause is accepted, the Minister will ensure that it encourages investment in this vital industry. As the hon. Member for Reading, West said, the industry is facing a great deal of change and competition, not all of it fair. The new Europe that will come in 1992 is all about competition and opportunities. The Department of Trade and Industry is letting the world go by in the film industry. It does not seem to realise that there are splendid opportunities there and that we should be encouraging indigenous talent within Britain and Europe, in competition with the United States, in an industry that has been sadly neglected for several years.
In 1990, United Kingdom film production was at its lowest level since 1981. A strong film industry influences overseas earnings and the balance of payments, and that is quite apart from the attraction of seeing a vibrant film and cinema industry. Whereas blockbusters like "Superman" and "Batman" were made with British expertise, over the past two years there have been times when there has been no major film production in the United Kingdom. Both as a source of new features and as a service centre for making foreign films, the industry is in a parlous state. We are reaping the cost of neglect.
As the hon. Member for Reading, West courageously suggested, our Government, unlike those of other countries, have treated film as an interesting luxury rather than as an industry and a producer of wealth. They have done this in the face of some unfair competition. The fiscal policies of other European Governments do not match ours and the concession that the new clause would introduce would help us to meet such competition from Europe and elsewhere. That is the very least that our filmakers are entitled to expect.
Even if the new clause is accepted, as it should be, there should be more encouragement for the film industry. The new clause is a first step in revitalising an industry in which there has not been a strategy for many years. The industry is facing the reality that many people are out of the habit of going to the cinema. Attendances have, I am happy to


say, increased in recent times but the trend not to visit the cinema is one that we must try firmly and steadfastly to reverse in the interests of this indigenous industry. For the most part we rely on fiscal incentives, and that is why the new clause is so important.
10.15 pm
There has been an absence of strategy. With the Films Act 1985, which is mentioned in the new clause, we rightly abolished the Eady levy. It had had its day. It was appropriate to patterns of cinema-going when it was in operation, but we have not replaced it with a modern approach to film production in Britain now or in future. I believe that it is vital to introduce a realistic replacement.
When we come to think of the future of the industry we must think also of those who use it. In the days of the Eady levy we thought that those who went to the cinema to see a film should make a contribution to the production of the next film. It seems remarkable, especially given the Government's fiscal policies and demands on a difficult industry, that television contributes so little to investment in the film industry and to film production.
I do not believe that there is a need for a permanent subsidy for our film industry, and I know few people who think otherwise. However, films should be recognised as the products of a key British industry. The industry should have the resources to create products that will succeed in the European market place. When we talk of Europe it is vital that we remember eastern Europe and the new influence that it will have on our ability to export and to make a contribution in a wider European scene. Our industry should have the potential to reach into the United States market and to reap the rewards that are available there. We have the talent and I believe that we have the commitment. The industry has the potential to be as important to the United Kingdom industry as Hollywood is to the United States' Exchequer.
Given incentives and a commitment by the House to some of the best film talent that is available anywhere in the world, progress can and should be made. By encouraging that we would see restored to Britain a once-great industry that would still give joy and pleasure to many millions.

Mr. Alex Carlile (Montgomery): I support the new clause of the hon. Member for Reading, West (Sir A. Durant) and the remarks of the hon. Member for Monklands, West (Mr. Clarke).
You will know, Mr. Speaker, that many celebrated feature films have come from popular television programmes. After the televising of the proceedings of this place for some considerable time now we might be seeing as competition to Superman III and Rocky IV, House of Commons V or even, dare one say it, Mr. Speaker VI. I say that merely to highlight the fact that there are many programmes on British television, apart from the proceedings of the House, and many aspects of British life that have been dramatised for television that lend themselves to British film making.
As Oscar ceremonies have shown in recent years, we in the United Kingdom have proportionately the richest array of talent of any country in the world. We have actors who can stand with the best. We have writers who are sought after in the United States to write films for Americans. We have the best film music makers, ranging from the traditional to the avant garde. We have

photographers, camera people and editors who have won prizes for the very best of films. We have directors who are in daily demand throughout the world.
British film excellence applies not only to blockbusters which were mentioned by the hon. Member for Reading, West; British directors have produced films which are perhaps of minority interest but which would have great potential if they received just a little more funding. We have produced film makers such as Peter Greenaway who is regarded as being among the best in the world even though he has hitherto made his films on a small budget.
It is perhaps also worth noting that for shipping companies the business expansion scheme limit has been raised to £5 million. Therefore, what the new clause seeks is not exclusive to the film industry. We are asking for something which is perhaps analogous to the shipping industry—the opportunity to invest more favourably in an industry which, like the shipping industry, was once very large and great but which has declined significantly in recent years for economic reasons and because of competition from elsewhere.
The new clause does not seek short-term measures. The idea behind the raising of the BES limit is to enable the film industry in the United Kingdom to regenerate itself over a period of years. My understanding of the proposal is that the film industry hopes to establish a £100 million fund for film making channelled through 20 BES production companies, each with a £5 million budget. The five-year plan would merge the 20 companies at the end of that period into one over-arching film production business with large investment funds and a "slate" of 25 films a year.
Although one might not see the BES funds on the approved list of funds in which local authority treasurers should invest their local government money, they would nevertheless catch the imagination of the public. There is plenty of evidence from the video boom and from the increasing attendances at many cinemas that the British public still want to see films. I believe that the British public would take pride in seeing more British films and that, above all, they would be prepared to invest in more British films. The French film industry is, relatively speaking, thriving and it produces many excellent films. That is an example of just one film industry elsewhere in the world which is galloping away from the British film industry.
People are prepared to invest in schemes as chancy as football pools and horse racing, and the BES is certainly a better bet than they are. I believe that the public would regard investing small amounts of money tax free in the film industry as well worth the gamble and if it is, indeed, a gamble it would be one which for some would bring the highest possible rewards imaginable if a British film became a blockbuster success at the box office.
The BES is tailor made for financing an industry such as the film industry, although I hope that the Minister will agree that it is self-evident that the present financial limit would not buy one fifth of a decently financed film which means that it is not a reality for the British film industry in its present form.

Mr. Chris Smith: As the joint secretary of the all-party group on the film industry, I support the new clause which was moved so ably by the chairman of that group. As always on these occasions, I must declare an interest, because the Association of Cinematograph, Television and


Allied Technicians, now transmogrified into BECTU, makes an annual contribution to my constituency Labour party.
For many years, I have criticised the Government for neglecting the British film industry. It is ironic that at the very time when British cinema attendance is flourishing, investment in British-made films has effectively collapsed. In 1985, the figure was £220 million. In 1989, it was just £79 million. As a result, film production in this country is at its lowest level in a decade. Overseas earnings have fallen from £104 million in 1986 to a mere £42 million in 1988, and the figure is still falling.
It is not that we do not have the talent to make good films in this country, but that sufficient investment income is not available to allow that talent to be put to good use in film production.
Labour wants to create a long-term British film fund for the purpose of investing in domestic film production, matched by private sector finance. That would provide certainty of funding, which would assist producers to plan and to raise private capital. It would also allow production on a sufficiently large scale to overcome the problems inherent in making films for a market as small as that of the United Kingdom.
Much of the money required for such a fund could come from the industry itself. However, the proposal in new clause 15 to introduce business expansion scheme funds, with tax incentives, as part of a much larger scale strategy to aid British film production would go a long way to ensuring that the fund could get off the ground and operate effectively.
The fund's income would need to be matched by private capital from outside the industry, which is why fiscal incentives are so important.

Lords Commissioner to the Treasury (Mr. Irvine Patnick): At what cost?.

Mr. Smith: The Conservative Whip mutters from the Treasury Bench.

Mr. Boateng: And somewhat incoherently.

Mr. Smith: My hon. Friend is right. The hon. Member for Sheffield, Hallam (Mr. Patnick) would do well to acknowledge that 30 per cent. of film production costs return to the Treasury through value added tax, PAYE, and corporation tax. Before the hon. Member for Hallam jumps to any rapid conclusions about the supposed cost of such a proposal, he should do his sums more carefully than Conservative Members appear to have done so far.
My hon. Friend the Member for Monklands, West (Mr. Clarke) stressed the importance of expanding the British film industry's geographical base. At present, the industry is heavily concentrated in London. Labour local authorities in places such as Birmingham and Sheffield understand much better than the Government the potential role that the film industry has to play in the economy, and they have introduced media development agencies that encourage and assist the growth of film making in their areas. Those are innovative ideas, and we would do better to build on them nationally.
The Scottish Development Agency has already helped to establish Scottish Screen Locations—which attracts film makers to Scotland for individual productions. I hope that

will help to reverse the decline in Scottish film making to which my hon. Friend the Member for Monklands, West rightly drew attention.
The Government should also realise that training is a vital factor in the recovery of our film industry. The industry has traditionally depended on loose apprenticeships in which people have learnt on the job, earning little or no pay. A number of initiatives have helped—not least the establishment of the North East Media Training Centre, which has pioneered new courses as part of an ambitious attempt to use the audio-visual media in regional development. The Labour party is committed to a training policy allowing employers to invest in their work forces, as they should in other parts of British industry.
10.30 pm
The new clause proposes exactly what Labour proposed when we debated last year's Finance Bill: the raising of the business expansion scheme limit for investment in the film industry from £750,000 to £5 million. What is good enough for private property under the present Government should be good enough for the film industry. It is very difficult to make a feature film for £750,000—extremely difficult, for any film maker worth his salt. A more reasonable BES limit should be introduced. If it is good enough for shipping and for private rented property, it must surely be good enough for the film industry.
Our film industry ought to be one of the most flourishing parts of British industry as a whole. We have the talent, the audiences, the traditions and the people—people with skills, ready to make the films. The new clause would provide the finance that would ensure that the industry could indeed flourish.

Mr. Maude: I sympathise with many of the sentiments expressed in this short debate. I congratulate my hon. Friend the Member for Reading, West (Sir A. Durant) on the way in which he presented the proposal. Many tributes have already been paid to the skills, talents and abilities of those who work in the British film industry; let me pay my own warm tribute to those people, whose performance—as has been mentioned—has been regularly recognised in various award ceremonies.
What should be done to assist the industry, and, in particular, to encourage British investors? We would all applaud an increase in British investment. The new clause proposes an increase in the business expansion scheme limit from £750,000 to £5 million. As far as I am aware, no investment in films through the BES has been prevented by the existing limit, although I should be glad to hear from hon. Members who have any evidence to the contrary. The hon. Member for Islington, South and Finsbury (Mr. Smith) implied that there was a huge, dammed-up demand for investment, which had been frustrated by the limit.

Mr. Chris Smith: Surely the Financial Secretary realises that the present level is so low in relation to the normal costs of producing a film that the great majority of film-makers would not begin to consider establishing a BES fund. The problem is that the limit acts as a disincentive. If the limit is raised, I suspect that we would see more interest in using the BES as a vehicle.

Mr. Maude: The hon. Gentleman may well be right. I can say only that before the £500,000 was introduced in


1988, there was virtually no investment in films through the BES. That may be different now and I do not reject the interesting proposition.
When my right hon. Friend the Chancellor of the Exchequer presented his Budget in March, he said that we could not introduce any specific taxation measures to help the film industry, but that we recognised the strength of the case and would look sympathetically at any taxation propositions by the industry and a proposition has now been made. As I have said, we are not fundamentally out of sympathy with the approach. There may be a means, through the proposition, of tapping into funds that would otherwise be funnelled into the film industry, but which are being prevented or discouraged from doing that at the moment.

Mr. Tom Clarke: Nineteen eighty eight was three years ago. Some of us believe that the reference to that in the Chancellor's speech was a slip of the tongue. I do not know whether that was the case, but will the Financial Secretary tell us about the progress made by the Department of Trade and Industry's working party? If he cannot, the high hopes that were raised at the Downing street summit will have been dashed. We have heard nothing in the debate so far to offer us encouragement.

Mr. Maude: The hon. Gentleman will hear plenty about the work of the Department of Trade and Industry working party from my right hon. Friend the Secretary of State for Trade and Industry. I cannot report to the House about that this evening. I can report to the House about the state of the Government's mind on taxation issues and I am ready to do that.
My right hon. Friend the Chancellor of the Exchequer said that we would continue to pursue and discuss with the film industry what taxation measures might be introduced to assist the industry. It appears that the industry would support the measure. As I have said, we are not fundamentally out of sympathy with it. I am prepared to look carefully with the industry at the possibilities to discover whether the proposition offers an answer.

Sir Anthony Durant: My hon. Friend the Financial Secretary's response was not as forthcoming as I had hoped, but at least there was some sign that the proposal would be examined as part of the general examination of fiscal measures to help the industry. On the strict understanding that the proposal will not be lost in the discussions, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 16

UNITED KINGDOM AUTHORISED UNIT TRUSTS

'Authorised unit trusts: unfranked income trusts

468G—(1) This section applies where—
(a) as regards a distribution period ending alter 31st December 1991 a dividend is treated by virtue of section 468(2) as paid to a unit holder (whether or not income is in fact paid to the unit holder), and
(b) all or part (in this section the "appropriate portion") of the dividend is paid from sources other than franked investment income, and
(c) the dividend is treated as paid by the trustees of a unit trust scheme which is an authorised unit trust as respects the accounting period in which the distribution period falls, and
(d) arrangements with the Board as provided in section 468H are in force in respect of such unit trust scheme.

(2) Where this section applies, if the unit holder to whom the dividend is treated as paid is not resident in the United Kingdom for the whole of the year of assessment in which the dividend is treated as paid and is resident in a qualifying country, he shall be entitled, on the payment (or deemed payment) of the appropriate portion of the dividend, to payment by the trustees of such unit trust scheme of the tax credit (if any) to which an individual resident in the United Kingdom would have been entitled had he received such dividend, and no United Kingdom tax shall be payable in respect of such dividend or the amount of the tax credit so paid.

(3) For the purposes of subsection (2) above, a person shall be treated as not resident in the United Kingdom and resident in a qualifying country for a year of assessment if this is proved on a claim in that behalf made to the Board.

(4) Where units are held under a trust and the person who is the beneficiary in possession under the trust is the sole beneficiary in possession and can, by means either of the revocation of the trust or the exercise of any power under the trust, call upon the trustees at any time to transfer the units to him absolutely free from the trust, that person shall, for the purposes of this section, be treated as the unit holder.

(5) The trustees shall certify in writing to the investor the appropriate portion of the dividend together with the amount of the tax credit referable thereto and to which a recipient is entitled to a payment as provided in this section.

(6) In this section "qualifying country" means any country which is at any time during such year of assessment a member state of the European Economic Community or any other country which is for the time being designated for the purposes of this section as a qualifying country by order made by the Board.

Authorised unit trusts: payment by trustees

468H—(1) The trustees of an authorised unit trust may enter into arrangements with the Board in respect of unit holders who would, if such arrangements were in force, be entitled to payment of the associated tax credit under section

468G.

(2) Under such arrangements where a dividend falling within section 468G is treated by virtue of section 468(2) as paid to unit holders in respect of whom the arrangements have been made—
(a) the trustees may pay to such unit holders the amount of the associated tax credit in respect of the appropriate portion of the dividend (the "additional amount"); and
(b) all additional amounts so paid shall be set against advance corporation tax which the trustees are liable to pay for the return period in which the dividend was paid and shall discharge a corresponding amount of

that liability.

(3) The Board shall not make arrangements under this section unless they are satisfied that the payment of the additional amounts shall not enure to the benefit of persons other than those entitled thereto.

(4) The effective period of such arrangements shall begin with the date on which the arrangements are made, or such later or earlier date as may be specified in the arrangements, and shall end with the date on which either party receives notice in writing from the other terminating the arrangements, or such later date as may be specified in the notice.

(5) The trustees shall render the Board an account at such time, and containing such particulars relating to the dividend as the Board may require.'.—[Mr. Watts.]

Mr. John Watts: I beg to move, That the clause be read a Second time.
New clause 16 would introduce two new sections into the Income and Corporation Taxes Act 1988–468G and 468H. I am moving the clause on behalf of the Unit Trusts Association, although I have no financial interest in that association.
My hon. Friend the Financial Secretary to the Treasury will have seen the same new clause in the Committee of last year's Finance Bill. I will therefore be brief in rehearsing the arguments because they are well known to him. I am moving the new clause again tonight to elicit what progress has been made in the discussions between my hon. Friend the Financial Secretary and the unit trust industry about changes in the tax regime to improve the competitive position of the British unit trust industry in the export market, particularly in the European Community. I know that my hon. Friend has an aversion to the phrase "level playing field", so I will avoid using it. The whole underlying purpose of the new clause is to provide a better basis on which the United Kingdom industry can compete and sell into what is an important investment market.
Without going into the detail of the drafting, which is unnecessary, the new clause would allow a foreign investor in a United Kingdom unit trust to receive dividends gross without deduction of tax. Such investors, perhaps in France or in Germany, would already be entitled to a tax credit and would be able to recover at a subsequent date tax deducted at source. If they invested in a domestic vehicle—in a French or German fund—they would not suffer that initial deduction. From the point of view of cash flow, the investor is better placed if a United Kingdom fund is able to pay dividends gross than he is under the present taxation arrangements. I know that in the past the Treasury has argued that that is a small part of the United Kingdom unit trust industry's business and that there is insufficient justification for changing the law to provide a better tax regime.
The industry, of course, argues that one of the reasons why it is currently a small area of business is that the existing tax regime is unfavourable to the development of the business and that if the changes that I propose were made it would be far easier for it to sell its products into the European market and to add to our invisible export earnings. The industry argues that it would generate additional revenue for the Treasury because, although the investment vehicle itself would not generate tax income for the Treasury, the management activities of the unit trust managers would be more profitable and, therefore, they would pay more tax.
I have described the argument in essence. At present, the industry cannot compete in international income funds on the same terms as some of its European competitors. That sector of funds is critical to United Kingdom fund managers' export success because it combines the strengths of London as an international fund management centre with the increasing demand in Europe from the aging population for such investment vehicles which means that there is a large and growing market. I hope that my hon. Friend can give some encouraging reply to the debate today.

Mr. Maude: I am grateful to my hon. Friend the Member for Slough (Mr. Watts) for raising the matter in the way that he has. I know that he has had a long-term interest in the matter and has, with my hon. Friend the Member for Beaconsfield (Mr. Smith), pursued it consistently and effectively. All hon. Members share my hon. Friends' concern that United Kingdom unit trusts should be able to compete effectively with their continental counterparts.
The special lower rate of corporation tax which we introduced for unit trusts in 1989 removed a serious disadvantage faced by unit trusts. The main beneficiaries were bond funds and it is encouraging to see recent advertisements for newly set up unit trusts investing in bonds. Moreover, an individual in this country who wants to invest in a collective investment fund cannot generally do better than to invest in a unit trust.
In the rest of the European Community, unit trusts investing in United Kingdom equities and in international equities growth are in a good position to compete with their continental counterparts. That is important given that those unit trusts account for the bulk of existing funds under management. The United Kingdom industry has most experience of running equities funds.
I recognise that the Unit Trust Association is concerned about the competitive position of unit trusts invested in bonds, and those that are invested in international equities for income. As I understand it, the new clause is aimed at improving the competitive position of these funds by allowing them to pay income to continental investors free of United Kingdom tax.
10.45 pm
The benefits, however, would not be as great as has been suggested. First, Britain is already a better place to set up income funds in international equities than Luxembourg, which is often seen as London's main competitor. However, in some cases a home country fund of this sort, for example, a French fund for a French investor, can produce a better return for investors. That would remain the case even if the new clause were adopted.
Second, taxpaying investors in other European Community countries, such as France, which give full credit for British tax would not end up with any more income from unit trusts after tax. They would simply end up paying extra home country tax that would cancel out the British tax that was saved.
Third, it is far from clear that tax is the main constraint on more sales by unit trusts on the continent. There are also the problems of the unfamiliarity of the trust vehicle in many Community countries and the difference in pricing methods. The Department of Trade and Industry is considering the case for company law changes to permit open-ended investment companies which might be more familiar to continental investors. But, as my hon. Friends accept, that is a complex exercise which will inevitably take some time.
The new clause is lengthy, and I fear it would be lengthier still once some extra parts had been added to make it workable. The end result would inevitably be a more complicated tax regime for unit trusts. It would mean a greater administrative burden for unit trust managers.
Overall, therefore, the new clause's disadvantages outweigh any benefits that it might bring, which might be more limited than has been suggested.
One of the disadvantages would be that there could be problems over foreign tax for equities funds on income from abroad which, in an extreme case, could mean that United Kingdom investors were worse off.
I know that the UTA is shortly to respond to an invitation from the DTI to put forward suggestions as to the form open-ended investment companies might take. It seems to me that the best way forward would be to see whether my right hon. Friend the Secretary of State for


Trade and Industry decides companies of this sort should be allowed. If so, we can then move on to look at how open-ended investment companies should be taxed, once we know what they look like. At that stage, we would of course be glad to have the industry's views on their tax treatment, including any comments on how continental investors should be dealt with.
I assure my hon. Friends that this is something that we take seriously. I have discussed this matter personally with the UTA on at least one occasion, if not several. It is certainly not something that we are allowing to go by default. We are concerned that British fund management,

which is, after all, a great British success story, should not suffer competitive disadvantages by comparison with competition elsewhere in the European Community.

Mr. Watts: I am grateful to my hon. Friend for his acknowledgement of the importance of the role of the unit trust movement and his clear willingness to continue to examine with it the ways in which its competitive position might be improved.
On that basis, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 22

CAR TAX: AMENDMENT OF CAR TAX AcT 1983

'For section 52(2) of the Car Tax Act 1983 there shall be substituted the following:

"(2) Car tax on any vehicle shall be charged for vehicles recording a touring fuel consumption in the following categories:
(a) 40 m.p.g. and above—zero
(b) 30 m.p.g. to 39 m.p.g.—5‥
(c) 25 m.p.g. to 29 m.p.g.—7½‥
(d) zero to 24 m.p.g.—10‥

(2A) For the purpose of determining the Touring Fuel Consumption, official Government economy figures will be used as follows:
50 per cent of urban cycle
25 per cent of 56 m.p.h.

25 per cent of 75 m.p.h. steady speed cycles.".'.—[Mr. Roger King.]

Brought up, and read the First time.

Mr. Roger King: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Harold Walker): With this, it will be convenient to consider also new clause 31—Car tax: reduction where pollution control devices fitted—
— After section 1(2) of the Car Tax Act 1983 there shall be added
(2A) Where a chargeable vehicle other than a caravan is fitted with a catalytic converter (or such other pollution control device as the Treasury may specify in regulations made under this section) at the time car tax falls to be paid under section 5 below and that time is not earlier than 1st July 1991, subsection (2)(b) above shall have effect as if the reference to 10 per cent. was a reference to 7½ per cent.".'.

Mr. King: It will come as no surprise to my hon. Friend the Minister that I rise again in a Finance Bill debate to raise the issue of the special car tax, which has been with us for many years—since value added tax was introduced—and which is a strong bone of contention with the motor industry belt of the west midlands where we feel that this element of taxation, which is unique to one type of product in the United Kingdom, detrimentally affects the sales of our products within the United Kingdom. At a time when the car industry is facing a downturn in its home market, we believe that the special car tax is long overdue for some reform.
A study of taxation of cars throughout Europe shows that in the United Kingdom the present level of taxation on a new car is in excess of 27 per cent., compared with 14 per cent. in Germany and about 22 per cent., which is falling rapidly and will fall further shortly, in countries such as France. Elsewhere the level of taxation is lower than in the United Kingdom.
Recently, car production in Britain has enjoyed a record level of output. That is because the industry has found a ready market overseas, principally in Europe, because of the improved quality of the product and its desirability in the marketplace. But it must be remembered that in connection with competitive pricing terms in the European market, the industry needs a strong home market. A strong home market gives it viability and competitiveness in the export market. While it is possible to make up for a shortfall in the home market by diverting products to the overseas market, that is not a long-term solution.
In addition, the retail sector is feeling the effects of the prolonged recession to a greater degree than perhaps any other industry, save the construction industry. Many retail businesses have gone out of business as a result of the downturn in United Kingdom sales, which are expected to fall this year to 1·5 million or even 1·4 million, from a peak of 2·2 million in 1989.
Another factor that we must bear in mind is the Government's desire to improve on the green aspect of their policies. We all understand and applaud that. The trouble is that if one does not tackle the problem of the car, one's green policies are somewhat suspect. If we do not encourage the sale of new cars in the United Kingdom, we shall be left with a growing elderly fleet of cars which, by their nature, are obsolete in design and have inferior emission standards. So it is in every one's interests to ensure that there is a ready market for new environmentally acceptable motor cars in the United Kingdom. That means that we should do what we can to stimulate sales.
There is no doubt that, along with manufacturers, the retail sector is playing its part in reducing prices as much as possible and offering financial incentives to encourage those important sales. But whatever the retail sector and the manufacturers do, we are still left with the 27 per cent. level of taxation.
We understand the Government's problems in eliminating the 10 per cent. special car tax. The tax brings in a large sum of money. However, this year that income will be much reduced as a result of the downturn in the United Kingdom market. But we see some clear linkage between providing environmental incentives and reducing the 10 per cent. special car tax.
My right hon. and learned Friend the Secretary of State for Transport put it clearly on Tuesday 9 July. He called on car makers to produce more fuel-efficient engines because
We cannot waste any time getting to grips with this challenge … It is, of course, for the Chancellor to decide whether any further changes in motoring taxation are appropriate to encourage greater fuel efficiency.
But fiscal incentives are a flexible instrument which require no new bureaucracy for their administration.
They leave motorists with complete freedom of choice while providing an incentive for them to choose economical cars and drive less aggressively.
At the same time they concentrate the minds of vehicle manufacturers on the importance of fuel economy.
We understand that fact. He was alluding there to possible changes in duty on fuel, but there are other ways. The 10 per cent. special car tax is one matter to which we should address ourselves. New clause 22 goes a long way to giving a clear indication of how the Government should think about encouraging the use of more environmentally friendly, fuel-efficient motor cars. We accept that it may not be possible to do something this year, but due consideration should be given in the next Budget to tackling the particular difficulty of the 10 per cent. special car tax.
We have devised a formula and a method to implement it. It establishes a touring fuel consumption using the Government's fuel figures, which are well known and well documented, to categorise cars into four fuel-consumption classes. Cars that achieve 40 miles to the gallon and above on the formula would attract a zero rate of the 10 per cent. special car tax. The car tax would rise to the level of the car that achieved only 24 miles per gallon or below, on which the full 10 per cent. special car tax would be payable.
The formula has the attraction of linking new car sales with environmentally acceptable vehicles, which it is the Government's aim to achieve. The Government have set themselves the target of restricting CO2 emissions to present levels in the year 2005. Given the growth in motor transport, that will prove very difficult indeed. If we can make a sea change in the marketplace by attracting drivers to buy more fuel-efficient cars, the levels that the Government seek to achieve can be met by the motor car industry. Naturally, the Government must also take steps to deal with emissions from power stations, factories and so on, but, given the potential growth in road traffic, this formula is the one way in which the Government can in a businesslike way set about attracting consumers to buy more fuel-efficient cars. In that spirit, I commend the new clause.

Sir Hal Miller: It gives me great pleasure to second the new clause so ably moved by my hon. Friend the Member for Birmingham, Northfield (Mr. King). Indeed, we consulted on its terms.
I have previously described the Budget as an unhelpful and unpleasant surprise for the motor industry—unhelpful in that the industry was singled out for additional taxation, whether through national insurance contributions on company cars and fuel, the increase in taxation on company cars or the unique impost arising from the special car tax uprated to 27 per cent. by the increase in VAT, which no other consumer durable bears.
Tonight I wish to approach the subject in a more constructive spirit. On Friday I said:
The motor industry is anxious and willing to make its contribution to improving the environment for all of us, as well as giving us the advantages of mobility and security."—[Official Report, 12 July 1991; Vol. 194, c. 1271.]
I said that the industry needed targets towards which to work. This is not just a sudden rush to green the industry. I was personally responsible for the motor industry's contribution to the Government's original White Paper. I arranged discussions between the Secretaries of State for the Environment, for Transport and for Energy and Treasury Ministers, and the Society of Motor Manufacturers and Traders. Since then we have been trying to obtain from the Government some targets to give the White Paper teeth. The only targets that we could light on were fiscal ones, which we believe are necessary.
I welcome the proposal of the Secretary of State for Transport in his recent White Paper on the environment and transport that market signals and incentives, apart from regulation and the provision of infrastructure, are the routes to adopt to improve the environment. Since the publication of the White Paper, my hon. Friend and I have been trawling all those Departments, seeking methods to improve the environment.
The first line of approach that we adopted was the suggestion that, in the short term, the only way to achieve the Government's target of stabilising CO2 emissions was by the wider use of diesel engines until further research had been undertaken to make cars running on alternative fuels practicable. There has been some recent publicity about the potential of the hydrogen cell. However, its use is still 10 years away on the most optimistic forecasts, or perhaps 20 years away on a more realistic time scale.
In the meantime, how do we cut CO2 emissions? The catalyst cannot help because it aggravates the problem. The new clause tabled by the Opposition is a case of Johnny-come-lately. Their attempts to persuade the

motorist that they are on his side are laughable in view of the remarks made by their spokesman on the environment in the debate on Friday. The Opposition's proposals are of no practical purpose because manufacturers have already made arrangements to meet the statutory requirements for the installation of catalysts in cars in the next model year. There is nothing to be gained from the Opposition's new clause.
11 pm
We are still trying to enable the industry to undertake the contribution that it is willing and anxious to make towards environmental improvements. My hon. Friend the Member for Northfield was rebuffed in Committee on the use of diesel fuel, which would have been a significant help to the environment. However, I understood from the various Secretaries of State I met that that option was their preferred choice. That is why the Budget was an unpleasant surprise.
Now we are trying to introduce targets and inducements for people to purchase more economical cars to cut down on the use of carbon. The use of diesel is much the quickest way to do that, but the Treasury has apparently developed new-found environmental skills that have eluded other Departments and it claims that diesel does not contribute towards reducing environmental harm. The Government's reasoning is obscure, but, even accepting the Treasury at its own word, we have presented yet another proposal to reduce the use of carbon. We aim to switch the public preference to more economical cars, which means more economical driving. At the same time we seek to reduce the obvious bias against the motor industry in our taxation system.
I am sorry to have to take issue with Treasury Ministers at this time of night. I have warm personal regard for them, but some of the correspondence I have received recently from the Treasury is so ignorant as to be breathtaking. One cannot sustain the assertion that our cars are not more heavily taxed than those on the continent. That is not true except for a few luxury models. As my hon. Friend the Member for Northfield has established, that assertion flies in the face of the facts. However, I do not wish to be vindictive.
We are trying to make our contribution towards improving the environment. We need to have targets. Tonight we are talking about fuel consumption as opposed to emissions, but I have suggested targets for improving the quality of fuels. In the past I have asked why we are wasting time trying to deal with what comes out of the engine instead of what goes in.
I have argued for greater research on alternative fuels, but there are things that we could do now in this Budget, and certainly in the next, to improve the position. What is incomprehensible is the fact that every time one tries to make that effort the Treasury dreams up some ill-founded reason for opposing it. That goes against the thrust of Government policy as set out by the Prime Minister in his speech on Monday last, as set out by the Secretary of State for Transport in his White Paper, and as set out in the White Paper produced by the Secretary of State for the Environment to which the motor industry—through my agency—made a significant contribution. We are not harking back, being vindictive or trying to rub people up the wrong way; we are trying to make progress. I hope that the Minister will say something to show that that effort to


improve the environment and provide signals to purchasers and drivers of cars is understood and will go some way towards being accepted.

Dr. Marek: If those Conservative Members who have spoken really want to do something for the environment and limit carbon dioxide emissions from motor cars, an obvious way to do so is to insist that every car has a governor to stop it going more than 70 mph. I do not know whether that suggestion would find much favour in the House, but if it were adopted, big cars simply would not be bought. Legally, no one should travel at more than 70 mph.

Sir Hal Miller: In America, where speed limits are lower than in this country, people still buy large cars.

Dr. Marek: That may be to do with the fact that petrol in the United States is much cheaper than in this country.
I sympathise with the new clauses. Although new clause 31 represents no commitment by a future Labour Government, it seeks to show a commitment to caring for the environment, which will be at the forefront of the actions of the next Labour Government. There is a deadline for catalytic converters anyway, and if a general election is delayed for too long, that deadline may overtake events.
I wonder whether the new clause is properly targeted. it must cost many hundreds of millions of pounds. There must be a certain amount of special pleading by the Conservative Members who have spoken—

Mr. Roger King: What?

Dr. Marek: The hon. Member for Birmingham, Northfield (Mr. King) is laughing and pretending to look nonplussed, but I think that he realises what I am saying.
I need to be convinced that the targeting of the new clause would achieve the environmental benefits better than any other method. There are other ways of achieving the same aim. The new clause would result in a major loss to the Revenue but would not have much effect on the environment. However, I remain to be convinced and if the Minister of State thinks that I am wrong I hope that she will say so. I insist that we need to pay more attention to the environment. There is no doubt that carbon dioxide problems are important. We may have to get rid of the car tax eventually anyway because of European legislation. If so, I should like to look at that because our car industry should not have to compete at a disadvantage with other European car manufacturers. This country will be prosperous and healthy only if the British car industry is properous and healthy. However, I have some doubts and reservations about the new clause and shall be interested to hear what the Minister has to say.

Mr. Wallace: The intention of both the new clauses in relation to improving the environment is laudable, and to that extent we should support them. I always think that if we were serious in our intent to tackle environmental problems involving cars, the first step that we could take within the powers of the House would be to change our mileage allowance scheme, which currently gives a greater incentive to those who run bigger cars. It is interesting that their Lordships did so—I think that they have a standardised mileage allowance, regardless of the car's size—[Interruption.] I can see to what controversy such a

proposal would give rise. However, if we wish to be serious about the problem, and to be taken seriously about it, we could set that example.
I do not think that there is too much dispute about the car's contribution to pollution. Although leaded petrol may be on the decline, road traffic produces carbon dioxide, nitrogen oxides, hydrocarbons and carbon monoxide. Road traffic accounts for 18 per cent. of Britain's emissions of carbon dioxide—a major greenhouse gas. Nitrogen oxides—of which 45 per cent. of total emissions originate from cars—are a major cause of acid rain.
Clearly, this issue must be tackled, but I fear that if it is to be tackled in an effective way, the consequences will be difficult for any political party to face. Over time, tackling the problem will lead to an increase in petrol taxation. The sooner that all parties face that and plan for the solution over a period, rather than allowing the solution to be forced on us by sheer force of circumstances, the better it will be for the consumer.
We should not forget the costs to the average household of traffic congestion. An estimate from the Confederation of British Industry showed that each household pays £10 a week extra for goods and services as a result of traffic congestion. The growing traffic congestion on our roads has not only an environmental effect, but a general effect in terms of the cost to industry.
I said that the measure was modest, and I suspect that, in the longer term, vehicle excise duty may be more geared to the environmental friendliness of a particular car. We should enter into discussions with car manufacturers and other interested organisations to develop specifications for achievable levels of fuel efficiency and emissions of pollutants. Those specifications should become stricter over a period, and perhaps it would be possible to vary the vehicle excise duty according to the degree of specification cars attain and abolish it for cars that meet a high specification.
We must be alert to the problems of rural districts, where a car is not a luxury, but often an essential. Many car drivers in rural regions already tend to drive smaller models. While it is often thought that the mileages are higher, many of them are necessary. If we were to switch from vehicle excise duty to petrol tax, it would not necessarily be as disadvantageous as is sometimes thought.
One of the main reasons for higher petrol prices in rural districts is that the throughput of traffic at many rural garages is low, so the mark-up for the retail petrol has to be that much greater. Value added tax is put on top of that price and on top of the duty. To some extent, the Government are receiving revenue through the disadvantages with which many motorists in rural regions have to cope.
I do not think that the new clause will be put to a vote, but I think that we are discussing the initial stages of something that, over a period, will have to be dealt with by something more radical than any proposals made this evening.

Mrs. Gillian Shephard: I pay tribute to my hon. Friends the Members for Birmingham, Northfield (Mr. King) and for Bromsgrove (Sir H. Miller), both for their contributions this evening and for their continuing, vigorous support of the British car industry. They advanced valid arguments about the need for green measures and said that such measures could encourage the


home market for cars. I hesitate to take issue with either of them because they are such experts in their field, but I am told that Holland, Portugal, Spain, Ireland, Greece, Denmark and Belgium all have roughly equal or higher rates of tax on non-luxury cars. If my hon. Friends know otherwise, I would be pleased to look into it further.

Sir Hal Miller: Will my hon. Friend give way?.

Mrs. Shephard: My hon. Friend is about to tell me.

Sir Hal Miller: I said that Treasury officials have speciously seized on luxury rates of tax for larger cars. For volume cars in the middle range the taxation is demonstrably factually much higher in this country.

Mrs. Shephard: I said that I would look into the matter further, and I certainly shall. I should be grateful to receive those exact details from my hon. Friend.
There are some problems with the proposals set out by my hon. Friends the Members for Bromsgrove and for Northfield. First, there is no conclusive evidence that reducing car tax rates would lead to consumers switching to more fuel-efficient vehicles because only switching at the lower margin of each tax band would incur a tax incentive.
One of the major problems is cost. Car tax yields £1·3 billion a year and the proposal in new clause 22 would cost about £880 million. Obviously, it would be necessary to discover how that might otherwise be raised. Some 95 per cent. of cars are in the 25-miles-per-gallon or better category, so there would be a considerable dead weight in the proposed tax incentive.
As I have said, the current car tax yield is £1·3 billion. That is a large amount of revenue for the Government, and careful thought would have to be given to finding the nearly £1 billion that would be given over by the clause. Both my hon. Friends the Members for Bromsgrove and for Northfield said that fuel consumption was determined by the type of vehicle and driving conditions. The manner in which the vehicle is driven is also significant.
The Government have not been inactive in the introduction of green measures for motoring. The difference in pump prices between leaded and unleaded petrol is more than 18p per gallon, and 40 per cent. of all petrol that is sold is unleaded. There is also a considerable difference at the pumps between the price of diesel and leaded petrol. I note what my hon. Friend the Member for Bromsgrove said about diesel. There is no doubt that diesel is certainly more efficient than petrol. Diesel-powered cars can travel more miles per gallon than their petrol-driven counterparts. However, my hon. Friends may be prepared to concede that there is some evidence that the emissions from diesel may be as polluting as those from petrol vehicles.

Sir Hal Miller: rose—

Mrs. Shephard: I have trailed my coat again.

Sir Hall Miller: Because the efficiency and economy of diesel are so much greater, the environmental advantage of emissions is about 20 per cent., quite apart from the carbon consumption.

Mrs. Shephard: I certainly accept that diesel-driven cars are more efficient. I conceded that.
In response to the Opposition clause, I can do no better than quote from a Finance Bill debate of two years ago. The hon. Member for Wrexham (Dr. Marek) said:
As we must change our exhaust systems and introduce catalytic converters in a few years' time, what is the point of having an incentive? … There is no question of providing an incentive to fit catalytic converters. It has to be done. We have agreed it with the EC. There are cases for incentives in certain circumstances, but they should be argued on their merits."—[Official Report, 11 July 1989; Vol. 156, c. 902.]
I could not make a better argument in answer to new clause 31 than he did then about financial incentives for fitting catalytic converters.
The Government recognise the importance of the motor industry and wish to see the advances made in the past few years maintained. The market situation is not easy, and it is a tribute to the industry's strength and flexibility that it has been able to increase production this year compared with last year, despite the downturn in the domestic market. Production is up 6 per cent. in the first four months of 1991 over the same period last year. There has been a massive surge in exports, with a 101 per cent. increase in the number of cars produced for export over the same period.
I thank my hon. Friends the Members for Northfield and for Bromsgrove for their contributions, for their continuing effort and for their vigorous support of this important industry. They will know that my right hon. Friend the Chancellor has said that he will look carefully at the impact of this year's measures on the industry when he is considering next year's Budget. I am sure that they will encourage him to do so.

Mr. Roger King: We all listened with great interest to my hon. Friend's comments. We shall inwardly digest what she has said. There is no escaping the fact that embracing environmental incentives—the Government have done so admirably with their policy on leaded fuel, which has cost the Exchequer considerable sums of money, although leaded fuel has gone up in price to compensate—it costs a great deal of money. We are well aware that the motor car is one of the main contributing factors to pollution and if we take up the challenge of containing that pollution, we have to look at arrangements such as those suggested in new clause 22. The challenge will not go away and until the Government produce a programme of environmental incentives along the lines of that which we have set out, I am not sure that they will meet the targets that they have set.
The challenge will be an expensive one to meet. However, our proposals will not be as expensive as my hon. Friend the Minister suggested. Not everybody will buy an economy car in year one or year two. Plenty of people will still wish to buy cars in the other bands. Given the downturn in the market from 2·2 million to 1·5 million, and below, this year, the Exchequer has lost an enormous amount of money. The modest tickle up of the industry that we are suggesting may be just what the Chancellor needs to bring money into his coffers.
As I said in my opening speech, we are probing, pushing, trying to find a way to encourage the Government to move along the lines that we are suggesting. We shall renew our attempts next year. Therefore, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 25

EQUITY RELEASE PRODUCT

'. In section 656 of the Taxes Act 1988 the following subsection shall be inserted after subsection (4):—
(4A) Where—
(a) the entire consideration given for the grant of an annuity consists of an amount payable on the death of the person purchasing the annuity,
(b) that person has attained the age of 65 years at the date of the grant, and
(c) the aggregate of that amount and of all other amounts (if any) payable on the death of that person and falling within this subsection does not exceed £100,000,
the value of the consideration given for the grant of the annuity for the purposes of subsections (2) and (3) above shall be deemed to be the amount payable on the death.".'—[Mr. Norris.]

Brought up, and read the First time.

Mr. Steve Norris: I beg to move, That the clause be read a Second time.
The new clause addresses a serious problem facing many elderly people. I start by declaring an interest as a director of Haven Services Ltd, a company which manages sheltered housing for more than 4,000 elderly people and their families. The company is 49·9 per cent. owned by Commercial Union, which has provided me with the technical information in this brief.
We live in an aging society. The number of people who were over 75 in 1985 was 3·8 million. In five years' time, there will be 4·2 million over 75, and when we are a short way into the next millennium, this will have risen to nearly 5 million.
Many of those elderly people will rely upon the state for their welfare. Some of the more prudent will have tried to provide for themselves in retirement, but they will have seen their savings eroded by the passage of time or by inflation to a point where their entire upkeep will have been thrown on to the state. There are some who do not have families on which they can rely, and there are some families that are not in a position to provide for their older relatives.
An OECD conference three years ago identified three principal ways of funding the rising costs of aging populations. First, it suggested that state benefits could become larger. Secondly, it was suggested that we could keep people at work longer. Thirdly, it was suggested that we could encourage elderly people to provide better for themselves, and the new clause is designed to provide that encouragement. It would ensure that a way was opened to enable an elderly person's own resources to be used better to provide cash for living.
As pressure on public funds grows, every effort must be made to allow those who could help themselves to do so. That in turn will allow public funds to be used to help those who have no other resources and more immediate needs. The Government recognise that need through the National Health Service and Community Care Act 1990, which envisages more private funding of care and the greater provision of care in the home.
We all know how much old people would prefer to stay in their own home. That was made clear in the Griffiths report of 1988, which led to legislation in 1989. Many elderly homeowners sadly become frail or lose their mobility, but they could stay in their own home if nursing and other relevant care were available to them. All too

often, tragically, they cannot afford that care and they lose their independence far more quickly than they need. The tragedy is that when the need is at its greatest, the wherewithal to meet the need is not available in ready cash. The huge irony is that many elderly people own their own houses. Currently 46 per cent. of retired people are in that position, and the percentage is increasing. Incidentally, most of the properties of these people are owned outright.
The house that is owned by an elderly person may represent a sizeable capital asset. It makes eminent sense to use its value while still allowing the elderly person to live in it. That encourages self-reliance, and it is consistent with the Government's policy to encourage privately funded age care. In present circumstances, however, these people—classically asset rich but cash poor—are compelled to sell up and part with their chief asset, losing along the way the increasing value of their property, of course, or they are forced to become a drain on their family or on the state.
There are options already. There are mortgages that are linked to annuities or investment bonds. There are home reversion schemes where the house is sold and the occupant continues as a tenant. There are roll-up loans, where a mortgage has its interest rolled up until death. All these are known broadly as equity release schemes, but each of them currently suffers considerable disadvantages.
As the Building Societies Association said in 1988, the low take-up of the schemes, in spite of the keen interest in them, was due to the limitations of the mechanisms rather than a lack of underlying demand. More seriously, recently two companies were expelled from FIMBRA for effectively promoting unworkable schemes. There are instances, sadly, of participants ending up paying out more money than the scheme delivers back to them.
With a minor change to the tax rules—this is the subject of the new clause—an equity release scheme that would be truly valuable could be available. In essence, the scheme would work as follows. An elderly householder would promise an insurance company that after his death a sum agreed between the two would be paid to the insurance company. The promise could be secured on the house or on other assets. In return, the insurance company would pay a regular and increasing amount to the participant. Companies operating such schemes would fund the payments from the pool of funds reverting to the company after the deaths of the participants. The key is that no borrowing is involved, hence there would be no interest payments to participants. Such schemes are immune to interest rate fluctuations and are therefore dependable and effective as a source of income.
If such schemes are to work, current tax rules need alteration. The new clause widens their scope to make it entirely clear that a participant would receive no interest element in his equity release income. The income is, in effect, an advance repayment of his own capital—that is, part of his estate. Technically, the participant will use part of the value of the house to buy a monthly sum until he dies, which amounts, in effect, to an annuity.
Such a scheme is therefore governed by the tax rules on annuities and the new clause would modify the relevant section—section 656—of the Taxes Act 1988. The payments received by the participant are in two parts—first, capital because it returns to him his purchase price over time and, secondly, income representing interest on the capital before it is paid back to him.
If the new clause were accepted, it would allow for schemes that would give participants predictable payments for their lifetime.

Mr. Charles Wardle: Is my hon. Friend aware that his proposal would be especially attractive to people who retired before 1978 and the introduction of the state earnings-related pension scheme? As he will know, in Bexhill in my constituency 46 per cent. of the population is 65 years of age or over. Many people retired before 1978 and the average statistic of an uplift in income over the past decade of 23 per cent. above the rate of inflation does not apply to them because they do not have additional earnings over and above their basic state old-age pension. My hon. Friend's scheme is especially attractive to people who wish to stay in their houses but do not have that additional income.

Mr. Norris: My hon. Friend is entirely right. He recognises the desperately sad phenomenon in his constituency of people who are asset rich and cash poor, who are keen to stay in their homes and who could have the wherewithal to do so if the Government were minded to consider the new clause with favour.
If the new clause were accepted, it would allow for schemes that would give participants predictable payments for their lifetime, which would increase at a rate expected to exceed inflation. Participants would retain full ownership of their assets and not be at risk of losing them. They would also benefit from the rising value of their house during their life.
When the present law was drafted, no one had contemplated such a scheme. Its wording enables the Inland Revenue to interpret part of the payment received by the participant as coming from interest and thus be subject to tax. I submit that no interest is involved and, subsidiarily, that such a tax liability would make the scheme decidedly unattractive and, in effect, unworkable.

Mr. Rupert Allason: Will my hon. Friend be kind enough to explain what would happen if the new clause were accepted and if a person in either sheltered accommodation or in his own property—which is what the new clause would provide—had to go into residential accommodation and had to sell his property?

Mr. Norris: I hope that my hon. Friend will forgive me, because I can give him only what should be a long answer. In brief, however, what happens in general is that, sadly, the entire value of the asset is consumed by local authority charges in a relatively short time. One of the ironies is thus that, in the end, the public purse must contribute far more towards the eventual upkeep of the elderly person than if the insurance company funded what remained of his life out of the pool of participants' income. If insurance companies were able to offer such a tax-efficient scheme, my hon. Friend's constituent in sheltered housing would be infinitely better off as would the local authority which would otherwise have to fund the person.
The Economic Secretary and the Financial Secretary were extremely helpful to me when I discussed the outline of the proposal with them. The Exchequer would not lose revenue if the new clause were accepted. It involves a zero interest annuity, no income is involved and only capital is paid out. As I said to my hon. Friend the Member for Torbay (Mr. Allason), there is a potential for substantial

public sector saving of community care costs, and the proposition is also in line with Government policy on encouraging independence. It is especially appropriate in dealing with the elderly who can manage in their own homes and whom we clearly want to encourage to do so.
On that basis, I invite the Minister to consider the advantages of extending the relief as I have outlined.

Mr. Maples: My hon. Friend's proposal is extremely interesting. I have considerable sympathy for the idea of enabling elderly people to release equity from their homes so that they are not, to use my hon. Friend's phrase, asset rich and cash poor. However, his amendment would create considerable possibilities for tax avoidance. I will not go into detail, but my hon. Friend is aware of them because we have discussed them.
It would be necessary to include in any such provision safeguards against such practices. I am, therefore, unable to accept my hon. Friend's new clause, but we will examine his proposal further, without commitment, to ascertain whether there might be worth while public expenditure savings if the proposed new annuity became available. I will ask the Inland Revenue to discuss the possibilities with bodies representing the insurance industry.

Mr. Morris: I take my hon. Friend's point concerning tax avoidance. I have no desire to see the scheme used as an avoidance device, but I believe that a mechanism could be devised to prevent that from happening, which would cap the amount made available under such a scheme.
I am grateful to my hon. Friend the Economic Secretary for his otherwise constructive acceptance of my general proposition. The concept of allowing people to release the large amount of equity that they have stored up for their own benefit, to provide for themselves in their old age, is an important one. In view of my hon. Friend's assurance, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 26

RELIEF FOR DISABLED PERSONS

'(1) The following section shall be inserted after section 265 of the Taxes Act 1988—
265(B).—(1) Where a disabled person who is self-employed requires the services of a personal assistant or assistants in order to undertake his employment, any payment to that assistant or assistants shall be deducted from or set-off against the income of the said person from that employment.
(2) For the purposes of this section person is a person in receipt of an attendance allowance, a care component of a disability living allowance or a constant attendance allowance under the industrial injuries or war pensions schemes.".'.—[Mr. Alfred Morris.]

Brought up, and read the First time

Mr. Alfred Morris: I beg to move, That the clause be read a Second time.
The Government's acceptance of new clause 26 would be a small but significant step in enriching the lives of a number of severely disabled people by enabling them to live independently in their own homes.
It is good to see the hon. Member for East Hampshire (Mr. Mates) in his place, and I hope that he will catch your eye, Mr. Deputy Speaker, as the debate proceeds. I understand that it was the issue of principle raised by a case involving a constituent of the hon. Member for East


Hampshire that first led the legal and parliamentary committee of the Royal Association for Disability and Rehabilitation to press for the change in the Taxes Act 1988 for which new clause 26 provides.
RADAR has liaised very closely with me over the drafting of the new clause, which has its full support. I refer the House to the details of the case brought to my attention by RADAR to exemplify the need for the new clause. For many years, the disabled person concerned—a mouth artist—was a resident of Le Court Cheshire home. Originally, he was able to pay his fees out of his earnings, but with rising inflation he was unable to continue doing so.
That individual's local authority refused to sponsor him, and consequently the charity had to foot the deficit. Eventually, the health authority agreed to sponsorship—which was more satisfactory, as its rules for the treatment of earned income are more beneficial to him than those of local authorities.
About five years ago, the individual in question—like so many other disabled people—decided that he wanted to leave residential care and to live independently. His work as an artist flourishes, but he has to pay £17,000 a year in fees to a nursing agency, which he believes should be treated as a work expense.
If that individual gave up his work, all his care costs would fall on the state, and the Treasury would receive no income tax. Equally, if the new clause encouraged other disabled people to set up in business, the state would gain considerable sums. For the Treasury to ignore the unavoidable extra costs of disabled living is unjust and self-defeating. For disabled people, hardship is piled on hardship as they try to compete with non-disabled people whose living costs are much lower than their own. The new clause is supported not only by RADAR but by the Disablement Income Group, Arthritis Care and many other admirable organisations of and for disabled people that are held in the highest regard by hon. Members on both sides of the House.
On 12 February, the Chancellor said that he could not then be expected to comment on the case for the change in the law that I am proposing owing to the proximity of his Budget statement. That was five months ago, and the Budget did nothing to remove the injustice to which the new clause is addressed. I urge him now to accept what is—as he must surely agree—a modest but none the less important amendment to the Bill.

Mr. Michael Mates: I am pleased to be able to support the right hon. Member for Manchester, Wythenshawe (Mr. Morris). I do not feel that this is a party matter; it is, above all, a human matter.
The right hon. Gentleman outlined the case of my constituent, Mr. Albert Baker, who, because of a very severe handicap, has been institutionalised all his life— latterly, during my time as his Member of Parliament, in the excellent Le Court Cheshire home. Five years ago, because he had developed such a tremendous skill in painting with his mouth—he cannot use his hands, his legs are in calipers and he is practically immobile without help—he decided that he wanted to lead an independent life. His income from his painting would just allow that. Accordingly, he moved out, and we all raised a cheer: that was precisely what the Government wanted. He is now on

the point of having to return to institutional care, because he simply cannot afford the cost of care, with which he is receiving no help. Moreover, he cannot claim it as an allowance against his income.
Five or six months ago, I spoke to the Financial Secretary about the matter. He promised that he would examine it closely, and he did so. However, he brought back the answer that—alas—we hear so often from the Treasury: "I am full of sympathy, but it is too difficult."
If nothing is done, my constituent will have to go back into institutional care, and then—oddly enough—it will be the Treasury that loses. My constituent is making an income, paying his taxes and doing what we want all disabled people to do—living as much in the community as possible. He has that most precious of things, his independence.
It is not enough simply to say, "It is too difficult. If we make an exception in this instance, we shall open the floodgates to others." There must be a way in which to define those who are so severely disabled that they must have full-time care, thus giving some allowance to people such as my constituent, who is doing his best to make his own way despite his dreadful handicaps. We should help such people, rather than shutting the door on them by making the tax regime under which they suffer much less fair than it is for the rest of us.

Mr. Maples: I am sure that we all sympathise enormously with the case that has just been described to us. In normal circumstances we would want to encourage those who have the guts to try to look after themselves, and to assist them, but there are difficulties in this instance.
I am afraid that I am going to say exactly what my hon. Friend the Member for East Hampshire (Mr. Mates) says that he is fed up with hearing from Treasury Ministers. There are some rules governing what can be deducted by self-employed people in business—expenses that are wholly and exclusively incurred for the purpose of their trade. If a self-employed person in the circumstances that my hon. Friend has described—whether disabled or not—employed someone wholly and exclusively in connection with his business, any payment made to that person would be deductible, but relief for expenses that are purely personal are not deductible.
However, if a disabled self-employed person employed someone who provided him with assistance—both personal assistance and assistance with his work—and if it was possible to define the proportions in which the expenditure fell, the Inland Revenue would be prepared to allow a deduction for the appropriate proportion when computing the business profits.

Mr. Mates: I did not raise that argument, because I was trying to be brief. However, according to that argument, people are encouraged to cheat. There is an invitation to deduct 10, 20 or 30 per cent. We do not want to go down that route. We want to be able to define such severe disablement so that care is an essential part of that person's making a living. That care is related to work, because the person to whom I referred cannot work without that care.

Mr. Maples: To the extent that expenses are incurred in enabling him to do that work, they would be deductible under the normal rules that apply at the moment. I was


about to say that the proposal extends wider than the right hon. Member for Manchester, Wythenshawe (Mr. Morris) and my hon. Friend the Member for East Hampshire suggested.
The new clause is confined to people who are self-employed. I am not sure whether that is logical. Why should the proposal not apply to employees as well? Why should it be confined to a personal assistant and the services of an individual who essentially works for the disabled person? Why should it not apply to other forms of expenditure such as special equipment, a car or special adaptations to a home?
The issue of the kind of expenses in which disabled people become involved to enable them to work could range much wider than new clause 26. We would quickly find ourselves in other areas. I wonder whether a tax relief of the kind proposed is the way to address the problem.
The right hon. Member for Wythenshawe and my hon. Friend the Member for East Hampshire should consider the wider issues. I do not believe that it is possible to deal just with the self-employed and personal assistants. If we believe that the tax system can be amended to help those people, we must be prepared to consider a wider group of costs and people. Although I make no commitments, perhaps we could consider that.
I understand that the problem is very important to those involved. However, by definition, perhaps only a relatively small number of people would be able to take advantage of the proposal. If the proposal were available, other people could take advantage of the other things that I said might be made tax deductible and we would no doubt face calls for those. If we were to face the problem, we would want to face the whole issue and not just a part of it, only to find that someone raised another aspect next year.
There are difficulties with trying to deal with the problem through the tax system. On the other hand, no one could fail to be full of admiration for the people referred to by the right hon. Member for Wythenshawe and my hon. Friend the Member for East Hampshire. I invite them to consider whether all the areas that I mentioned could be brought together in some way and I would offer to look at the matter again. There are difficulties, but I cannot offer to accept a proposal focused on the narrow area of a self-employed person employing a personal assistant. I would be prepared, without commitment, to consider the wider aspect to see whether something more generally could be done for disabled people to enable them to work and look after themselves, whether or not they are self-employed and whether the expense was related to personal assistance or otherwise.

Mr. Alfred Morris: The Economic Secretary will not be surprised to learn that we find his response very disappointing. He seems to argue at one and the same time that perhaps the new clause does not go far enough and yet it goes too far. He has agreed to look at what he calls the wider area. I am grateful for any further consideration that he is prepared to give to what is a very important amendment.
I am sure that the House was moved by the statement of the hon. Member for East Hampshire (Mr. Mates) about his constituent.
The Royal Association for Disability and Rehabilitation is well deserving of consultation by the Treasury. I hope that the Minister will consult RADAR and other appropriate organisations.
It is not my intention to press the new clause tonight, but I emphasise again that it is unjust and self-defeating of the Treasury not to help people who are trying as hard as the constituent of the hon. Member for East Hampshire to achieve the dignity of staying as a taxpayer instead of moving towards the dependence of social security payments.

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 27

AMENDMENT OF FINANCE ACT 1990

'.—(1) The Finance Act 1990 shall be amended as follows:
(2) In section 25(2)(g) leave out £600 and insert £250.".'.—[Mr. Alex Carlile.]

Brought up, and read the First time

Mr. Alex Carlile: I beg to move, That the clause be read a Second time.
The new clause relates to gift aid. Gift aid has been a success. We were told in Committee that in the eight months to the end of May this year, tax repayments of more than £19 million had been made to charities. In Committee, the Economic Secretary promised to keep the minimum limit under careful review, having agreed and included in the Bill a provision that raised the maximum limit.
It is disappointing that, thus far at least, the Government remain determined to keep the minimum limit as high as £600. There must be many people who would be prepared to enter the gift aid scheme if it were possible to give £250 or a figure between £250 and £600, but who cannot give as much as £600. I appreciate, of course, that tax relief can be obtained for small donations given, for example, under deeds of covenant. However, many people find the gift aid scheme simpler, more attractive and more straightforward than giving under deeds of covenant, which they regard as a legal procedure involving a legal document which they feel binds them for a number of years in circumstances that may well change.
I suggest that the reduction of the limit from £600 to £250 would lead to a considerable increase in charitable giving while maintaining the threshold high enough so that the administrative costs are not disproportionate. We know that charities have had to absorb a real blow as a result of the 2·5 per cent. increase in VAT which was announced in the Budget. We know that the Government express support for the voluntary sector—indeed, we have heard many exhortations from the Government that people should be more self-reliant and that the voluntary sector, especially charities, should carry greater burdens. We know of the tremendous support which the public are prepared to give charities in relation not only to poverty and other domestic considerations, but to worldwide challenges which they see in their newspapers and on their television screens.
The total unreclaimable VAT bill met by charities in England and Wales this year will amount to as much as £250 million. That places not only a financial burden, but an administrative burden on the charities.
As I said in Committee, there is a strong case for the reform of charity law. I encourage the Government to


consider whether that reform can be included in the next Gracious Speech. I hope that that will be the case. Perhaps the Government can give a commitment now that they will consider lowering the lower threshold for gift aid so that charities can enjoy, as we approach the general election, the double bonus of being able to receive far more under gift aid and to work in a less mysterious and hostile framework.

Mr. Maples: The hon. and learned Member for Montgomery (Mr. Carlile) has had two bites at this cherry because exactly the same points were raised in Committee.I am afraid that I shall give him pretty much the same answer. This is an example of how, when a Government introduce what is universally acknowledged to be a good scheme, within a year people are saying that it is not generous enough. However, the charities are saying that they widely welcome it. This month's issue of Charity magazine states that it is
universally acclaimed as being the best thing that a Chancellor could have done to unlock new money".
By the end of May, charities had claimed tax repayments on some 17,000 gifts by both individuals and companies, which provided charities with income of £57 million, and a further £19 million in tax repayment claims. It is a pretty successful scheme.
The aim of gift aid is to encourage substantial gifts to charity. Tax relief is available for smaller gifts made under deeds of covenant or for gifts up to £600 a year made under the payroll giving scheme. Those are valuable assured sources of income and it is important not to undermine them. There is a danger that reducing the limit for gift aid to, say, £250 would undermine the payroll giving scheme and covenants and thereby remove an assured source of income—a flow of income over a period—from charities.
It is not practical to give relief for all small one-off gifts to charity. Covenants, which continue for a period and for which the tax paperwork can generally be processed by the donee, or payroll giving, where it can be done by the donor, are relatively easy things to administer. Enabling people to give individual gifts of about £250 would create an administrative problem. It is for a combination of those reasons that we decided to set a minimum limit of £600 net of basic rate tax to single gifts to charity under the gift aid scheme.
I understand why the hon. and learned Gentleman feels that it might be beneficial to charities to reduce the limit. However, the arguments are not all on one side and, as the scheme has been in existence for only one year, I am reluctant to concede any amendments now. I am giving him pretty much the same answer as I gave in Committee, but I can assure him that we shall keep the minimum limit in mind when we consider the results of the scheme and whether there are ways in which it can be improved.

Mr. Alex Carlile: It is disappointing that, despite strong representations from many charities, the Government are unwilling to reduce the limit at this stage. However, it is welcome to hear that the Government will keep the matter under review. Many of us who take a close interest in charities are waiting and hoping for a much more substantial law reform in relation to charities very soon. Bearing in mind what has been said, for the time being I am content to beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 30

ADDITIONAL PERSONAL ALLOWANCE —NON-DISCRIMINATION

'—(1) Section 259 of the Income and Corporation Taxes act 1988 shall be amended as follows:
and the section as amended shall have effect for the year 1990-91 and subsequent years.
(2) In paragraph (c) of subsection (1) the word "man" shall be replaced by the word "individual" and the word "wife" shall be replaced by the word "spouse".
(3) In subsection (4) after the words "husband unless" shall be inserted the words "either relief is available by virtue of subsection (1)(c) above or".'.—[Mr. Chris Smith.]

Brought, up and read the First time

Mr. Chris Smith: I beg to move, That the clause be read a Second time.
In Committee we drew the attention of the Government to an example of discrimination of the tax system in relation to the additional personal allowance. The allowance is available to someone who has a child living with him, if that person is a man and is married and living with a wife who herself is totally unable to look after herself throughout the year to which the allowance applies because of illness or disability. The tax relief is available to a man in such a position but not to a woman living with a totally disabled or ill husband. I believe that in Committee the Minister voiced her sympathy with our point that that is grossly discriminatory. I repeat that a man can claim the additional personal allowance but a woman in identical circumstances cannot. We believe that there should be equity between husband and wife. That is why we have tabled the new clause on Report.
In Committee the Minister said that she was sympathetically inclined towards an examination of the problem that we had identified. The problem was first drawn to my attention by my hon. Friend the Member for Dundee, West (Mr. Ross), who has a constituent who cannot avail herself of the additional personal allowance, whereas if her husband had been in her circumstances, he could have done so.
The Minister said that she was sympathetic and that she would consider the issue. She gave no absolute commitment to come back on Report to put matters right. Very helpfully, she wrote to me on 11 July to say that the Government had further considered the matter but were not yet ready to make specific proposals. I was disappointed to receive that response. Of course, I appreciate that the Government may wish to take a wider look at the issue; they may want to consider it in the context of the benefits system as well as of the tax system. I appreciate that a tax allowance benefits only those who are taxpayers. It does not benefit everyone who might be in this particular circumstance.
12 midnight
However, to put right the discrimination now would, at least for this year, get rid of an example of discrimination in our taxation system. The Government could then spend the rest of the year considering the issue more carefully and fully and could produce more fully worked up proposals next year. But to accept the new clause now would enable us to put on the statute book, for this year at least, a measure to remove a blatant example of discrimination in the availability of the additional personal allowance.
I hope that at this eleventh hour, as we approach the closing stages of the Finance Bill, we might just persuade the Minister of State to have another look at our new clause and to say just for once, "Yes, the Government will do something right now", and not put off doing so for fear of avoiding doing something better in the future. I hope that the Government will find it in their heart to accept the new clause and put right the discrimination. They could then perhaps go on to look more fully at how to remedy other wrongs within the system.

Mrs. Gillian Shephard: As the hon. Member for Islington, South and Finsbury (Mr. Smith) said, the new clause is essentially the same as the one that we discussed in Committee. The only real difference is that the change would apply from 1990–91 instead of 1991–92.
I said in the debate in Committee that the difference in the treatment of men and women was an anomaly and that I would give further consideration to this important issue. As the hon. Gentleman said, I have written to him on the matter. I am not certain whether the new clause was tabled before or after he received the letter. I said in my letter and I repeat now that the Government want to look at the issue thoroughly and carefully and that it is not possible to review the matter properly in time to reach a decision before this Report stage. However, I assure the hon. Gentleman, as I assured him in my letter, and I assure the House that we take the issue seriously. It needs to be tackled and tackled thoroughly.

Mr. Chris Smith: Of course, I appreciate the sympathy with which the Minister of State approaches the issue. I remain disappointed that she did not feel able to go that little bit further tonight and make a change in the Bill. We shall continue to press the Government on this matter because it remains an outstanding anomaly within the system. Although perhaps it does not act against the interests of many people, for those who are affected it means a lot. We shall continue to press the Government on the matter. We look forward to a specific proposal within the next few months that the Government will introduce measures to deal with this anomaly. In that hope, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 39

RATE OF VEHICLE EXCISE DUTY (No. 2)

'In determining the rate of vehicle excise duty for the year 1991–92 and subsequent years for any class of vehicle the Chancellor of the Exchequer shall have regard to the principle that all classes of vehicle shall cover their track costs by broadly the same factor and that any variation for any particular class of vehicle may only be justified because of a comparative benefit with respect to other classes of vehicles to the environment.'.—[Dr. Marek]

Brought up, and read the First time.

Dr. Marek: I beg to move, That the clause be read a Second time.
I shall be brief as it has gone midnight and we have many more amendments to get through. I could speak at length on the new clause—[HON. MEMBERS: "The hon. Gentleman has done that before."] Yes, but I shall confine my remarks to table 9, entitled, "Road taxation revenue and road costs in 1990–91: by vehicle class" from the pamphlet, "The allocation of road track costs 1990–91,

United Kingdom", which was issued by the Department of Transport in April 1990. That is the only table to which I shall refer in my remarks.
The new clause is simple. It asks the Chancellor of the Exchequer, before he makes his Budget judgments on vehicle excise duty and costs for road users, to level out the taxes-to-costs ratio. Any differences should be accounted for by the environmental benefits that certain vehicles bring to the roads. The reason for that is simple. Table 9 shows that for cars, light vans and taxis the taxes-to-costs ratio is 3£2:1, whereas for goods vehicles over 3·5 tonnes the ratio is only 1·3:1.
We certainly need roads and heavy goods vehicles because we must transport goods, and most goods are transported by road. We must also be mindful that we do not disadvantage our industry through taxation policy compared with industry elsewhere in Europe. I am aware that transport in Germany is always that bit cheaper than it is in this country. In some ways I should like the Minister to worry not just about what goes on in the United Kingdom, but about what goes on within Europe to ensure that our industry is not disadvantaged by transport costs.
The difference between the ratios is large. Owners of large vans and motors will pay fuel tax and vehicle excise duty, and they will more than cover their costs on the road by a factor of 3·2:1, whereas some HGVs only just cover their road track costs. Table 9 shows that all goods vehicles over 3·5 tonnes just cover their costs by 1·3:1.
Let me put this in figures so that it is absolutely clear. There are 22,622,000 cars, light vans and taxis. The cost of the damage that they do to roads comes to £3,075 million. There are only 471,000 heavy goods vehicles, yet the damage that they do to roads comes to £1,510 million. Although the number of HGVs is much smaller, they do half the damage that is done by all the cars, light vans and taxis. If the House considers that, and that the HGVs' taxes-to-costs ratio is only 1·3:1 compared with 3·2:1 for cars, light vans and taxis, it will agree that something is wrong.
When we had a discussion on an associated subject in Committee, the Minister said that she would consider the matter carefully in the ensuing year. That is important. I hope that the Minister will reaffirm that commitment. I also hope that she will consider the issue in terms of the environment. If the transport of goods is unnecessary, it is obviously environmentally friendly not to undertake such a journey. It is environmentally friendly to move goods by rail or water whenever that is possible. However, I appreciate that most goods are transported by road. Little thought has been given to this issue by the Government.

Mr. Peter Bottomley: I speak with three and a half years' experience of dealing with such matters. A great deal of thought has been given to the issue. The Transport and General Workers Union would be upset if HGVs, which many of its members drive, were subject to three times their current tax. It would be reasonable to take the surplus raised from private motorists for use on pensioners, hospitals and education. However, to try to load the costs on industry when the rest of the European Community is not even taking the track costs from its HGVs suggests that the remarks of the hon. Member for Wrexham (Dr. Marek) should be directed at the EC rather than at my hon. Friend the Minister.

Dr. Marek: Perhaps the hon. Gentleman has just entered the Chamber, but I have already mentioned the EC. The Minister must lobby in Europe to ensure that our industry is not disadvantaged. The record will show that I have now said that for the second time, and I have already said that I do not want to delay the House.
The disparity is too large and not enough is being done to look after the environment and to introduce green policies in transport taxation. If the hon. Member for Eltham (Mr. Bottomley) had regard for such matters when he was at the Department of Transport, his efforts were obviously unsuccessful. I do not want to be deprecatory, but it is evident that he may have worried so much about such policies that he is now on the Back Benches—again I do not intend to be deprecatory.
A problem exists, and I hope that the Government will consider it urgently.

Mr. Michael Jopling: I have listened with considerable interest to the hon. Member for Wrexham (Dr. Marek), but, with respect, his speech was grossly deficient in one aspect. He did not mention the vehicle excise duty on motor cycles.

Dr. Marek: The next set of amendments address that issue.

Mr. Jopling: I am aware of that, but it is as well to raise the matter.
I must declare an interest as I am the president of the Auto-Cycle Union, which is the governing body of motor cycle sport.
The Budget caused considerable resentment among the motor cycling community, of which, as the House may know, I am a member. That statement did not refer to the fact that the vehicle excise duty on motor cycles had been increased by a far greater extent than that on motor cars. That should have been declared in the statement. If the Treasury and Chancellor should ever feel inclined to impose such a disproportionate increase in excise duty in the future, that should be made clear to the House during the course of the Budget statement. This year that duty increased considerably and I have not heard any adequate explanation as to why that was necessary.
The hon. Member for Wrexham referred to damage to roads. That is an important factor of which the House should be aware. Motor cycles cause practically no damage to roads. Given the number of people that they transport, they cause proportionately less damage to roads than any other mode of transport. Their effect on the environment with regard to congestion, the parking space that they take up, the space that they occupy in general, and the fuel that they use in proportion to the number of people that they transport make them an environmentally friendly form of transport.
I am interested in the new clause and shall listen carefully to what my hon. Friend the Minister of State says. However, in framing the Budget and the Finance Bill, proper regard has not been paid to the motor cycle community's claims. On the whole, it has been dealt a pretty dirty deal during the course of these amendments.

Mr. Peter Bottomley: I do not want to take the new clause too seriously because I do not think that the hon. Member for Wrexham (Dr. Marek) takes it too seriously. It is important to realise that it means either that the

taxation on heavy goods vehicles should be tripled or that the vehicle excise duties for cars should be cut to one third of its present rate. Neither of those propositions can be seriously floated past the hon. Member for Derby, South (Mrs. Beckett).
I hope that we shall continue to see a degradation in the value of the vehicle excise duty for cars—the figure should not change—and that the extra cost will be put on the marginal use of cars. That is the only sensible way to look at motor taxation. We should raise the marginal cost of using a private car both in terms of cost and time, rather than going for the road pricing theory, which is a space for every car for which someone must pay with a fistful of fivers. We should also continue to try to reduce the cost of the damage that heavy goods vehicles cause to the roads by introducing better suspension systems and by trying to ensure that lorries are kept outside residential and shopping areas.
Even before I intervened the hon. Member for Wrexham spoke about the track cost in the rest of the European Community. I emphasised that in my intervention because it needs emphasising more and more. Only when other European countries begin to realise the damage that those vehicles cause will we see fair competition between hauliers. British hauliers will do better in that competition because we have better co-operation between drivers and management and, unlike most other hauliers in Europe, our management is used to competition.
I hope that the new clause is not pressed. The hon. Member for Wrexham probably regrets having spoken on it.

Mrs. Gillian Shephard: Clearly, in constructing a policy for motor taxation a balance needs to be struck between environmental considerations, revenue received and practicalities. In that respect, although I know of the enthusiasm and expertise of the hon. Member for Wrexham (Dr. Marek) on the comparative tax paid by certain types of heavy goods vehicles, his proposals involve practical problems which he has not addressed.
For example, to bring the tax-cost ratio of HGVs up to that of cars and light vans would involve, on average, sevenfold increases in their vehicle excise duty. That means that some lorries would pay £21,000 VED a year, which might not be welcomed by British industry. Alternatively, to bring cars down to the same ratio as lorries would require us to cut their overall tax burden by £6·6 billion. As VED brings in only about £2·5 billion, abolishing it altogether would bring the ratio down to 2·4:I rather than 1·26:1 that the hon. Gentleman seeks.
However, motoring taxation, fuel duty and vehicle excise duty are mainly about raising revenue, which amounts to nearly £14 billion, though it is clearly sensible to adopt a policy so that all classes of vehicle should at least cover their share of the public expenditure costs of the road network. All vehicles now do so as a result of the changes in VED and fuel duty that we have made over the years. I know that my hon. Friend the Minister for Roads and Traffic wrote to the hon. Member for Wrexham after the debate in Committee to explain how those duties were calculated.
I welcomed the contribution of my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling), who is a distinguished motor cycle enthusiast. In his Budget speech, my right hon. Friend the Chancellor of the


Exchequer did not have time to mention all the measures, but details of the VED increase for motor cycles were mentioned in the "Financial Statement and Budget Report", and in the Department of Transport press notice. Motor cycle riders pay less tax on fuel and a lower VED than car drivers.
Environmental issues have been mentioned. We can sometimes use taxation to bring positive environmental benefits. In earlier debates we mentioned the differential between leaded and unleaded petrol which has boosted unleaded petrol's share of the market to more than 40 per cent. We also switched the balance of taxation for both private vehicles and lorries from fixed to variable costs, thus ensuring that those who pollute most, pay most. In 1980, the Armitage inquiry recommended that the excess for each sub-class of heavy goods vehicles should reflect their relative impact on the environment. It is difficult to achieve that perfectly, and we never do as well as the hon. Member for Wrexham would like, but VED paid by those using heavier rigids has, in general, increased by more than that for articulated lorries.
My right hon. Friend the Chancellor and my right hon. and learned Friend the Secretary of State for Transport pay serious attention to the needs of the environment because we all benefit from that. We have achieved much through our taxation policy, but we have been able to do so only while still having regard to fiscal policy overall, because our policy leaves my right hon. Friend the Chancellor with the flexibility to respond to new situations and concerns.
The Government's aim is to achieve a fair system of taxation that takes account of all factors, not just the environment. That can best be achieved by leaving the present and future Chancellors flexibility to respond to new situations and concerns, not by restricting their room for manoeuvre.

Dr. Marek: The new clause simply proposed that the Chancellor of the Exchequer should have regard to the principle, and then enunciated the principle. The hon. Member for Eltham (Mr. Bottomley) is a man of extremes. He said that the policy had to be on the extreme left or the extreme right, but there are all sorts of possibilities in between. One can have regard to the principle, but it is sometimes hard to adopt the principle and implement it immediately. I am under no illusions about that.
We have had a useful debate. I am glad that the Minister said that the Government have regard to the environment, and the vehicle excise duty on some classes of heavy goods vehicles has risen a little more. I hope that the Treasury will ensure that the Department of Transport turns its attention to that before the next Budget because it does not look as though there will be a general election before next May or June, and there will be another Budget under the present Administration. In those circumstances, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 4

VEHICLE EXCISE DUTY

Dr. Marek: I beg to move amendment No. 18, in page 3, line 6, leave out '15.00' and insert '11.00'.

Mr. Deputy Speaker: With this it will be convenient to take the following amendments:
No. 19, in page 3, line 12, leave out '30.00' and insert '22.00'.
No. 20, in line 13, leave out '50.00' and insert '42.00'.
No. 21, in line 14, leave out '50.00' and insert '42.00'.

Dr. Marek: The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) referred in the previous debate to motor cycles. The amendments are an example of how the Treasury has gone the opposite way in terms of looking after the environment—motor cycles are reasonably environmentally friendly machines, at least when they have proper baffles fitted to their exhausts so that they cannot be heard from two or three miles away. Motor cycles travel a great many miles to the gallon. That means that they are environmentally friendly. Although vehicle excise duty on motor cars was not changed, the duty on motor cycles and some other vehicles was increased, and that is unfair.
The amendments are modest. They seek to raise the duty on motor cycles from £10 to £11 and not to £15. Where the duty was £20 we propose an increase to £22. Duty on the highest cubic capacity is to be raised from £40 to £50, but the amendments suggest an increase to £42. There is much concern that vehicle excise duty on motor cycles is being increased simply because there was much evasion. The last substantive paragraph in a letter from the Chancellor of the Exchequer to Mr. Peter Ryder of the British Motorcyclists Federation states:
The widespread evasion of VED is of concern to Government because of both the revenue loss and the effective reduction in checks for MOT and insurance. It would appear that the penalties for evasion at the current level of VED are not a sufficient deterrent and I hope that the increase will help stop the slide.
What does that mean? The letter continues:
I know that as a responsible organisation you do not condone the activities of those who ignore the law, and I hope you will understand that the Government cannot tolerate them either.
What does the Chancellor mean when he says
the increase will help stop the slide"?
Does he mean that the extra excise duty paid by motor cyclists will stop the decline in the Treasury's revenue? If he does mean that, he is advancing the unfair principle that simply because some people evade paying excise duty—and it is not only some motor cyclists who are guilty of that—a punitive increase in vehicle excise duty should be imposed to make up for the shortfall.
The ratio of motor cycle duty to car duty has remained constant for many years. Without notice the Chancellor decided to pick on motor cyclists and to increase vehicle excise duty, and he has not offered a rational or logical explanation for doing so. I do not expect the Government to admit that they were wrong and that they will cancel the increases, but I hope that the Minister will give a logical explanation for the increases or at least admit that the changes were for completely spurious fiscal reasons and that not enough attention was paid to the impact of the increases.
The Minister should ask the Department of Transport to look at the environmentally friendly aspects of motor cycles, cars and heavy goods vehicles and submit better proposals next year.

Mr. Jopling: I apologise to the House for jumping the gun and speaking about motor cycles during discussion on the last amendment. When the Minister of State, Treasury replied to that debate she said that the Chancellor did not


have time in his Budget statement to refer to this massive increase in the excise duty on motor cycles. All that I can say is that if he had time to refer to the contentious issue of mobile telephones, it is difficult to believe that he did not have time to refer to an increase in excise duties on motor cycles that was proportionately far larger than that for cars, and that affected far more people than a tax on mobile telephones. That argument will not wash, so I hope that neither she nor any of her colleagues on the Treasury Bench will use that argument again.
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I have yet to hear a proper explanation of why it was felt necessary to increase the excise duty on motor cycles by so much. In the previous debate, I declared my interest in this matter. Until today, I was the owner of a large capacity motor cycle, and I hope that I shall have another one the day after tomorrow.

Sir Philip Goodhart (Beckenham): While my right hon. Friend can undoubtedly ride his machine with the greatest of skill, is he not aware that it is 12 times as dangerous to ride a motor cycle as it is to drive a car? It may be that the desire to reduce the appalling rate of casualties among motor cyclists inspired the Treasury.

Mr. Jopling: I understand my hon. Friend's point, and, like him, I am greatly concerned about the number of deaths and injuries among young people who ride powerful motor cycles when they are not particularly experienced. This is a matter of as much concern to me and to many involved in the motor cycling sport as it is to him. The Government are not backward in coming forward to tell us that they are putting up cigarette duty for much the same prevention reason. If this is why they are increasing the excise duty on motor cycles, let them tell us. As far as I am aware, that argument has not been used.
The hon. Member for Wrexham referred to evasion. I was not going to mention that because I did not think that it was worth mentioning, but as he has, I should say that it is irrelevant when it comes to deciding at what level to pitch the duty. I see no point in penalising those who pay to make up for those who do not pay. I should have thought that if one pushes up the price of a road licence on a motor cycle, one encourages people not to pay it, so that is not the way to go about it.
I do not want to press this matter this year, but I should tell my hon. Friend the Minister that I feel miffed about the way that it has been handled. I feel miffed about the logic behind it, which I do not understand. This has been a raw deal for those who ride motor cycles. I hope that people will not again be given the opportunity for criticising the Government for picking on the motor cycling community by clobbering it with an excise duty. I hope that it will not happen again.

Mr. Wallace: The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) was right to say that motor cyclists have been clobbered. The percentage increases are startling, especially when the vehicle excise duty for motor cars was not increased. The Minister tried in Committee to explain away the percentage increases by saying that the actual amounts were increases of £5 or £10, but for many motor cyclists the increases are not neglible. We are talking of sizeable increases for vehicles that are environmentally

friendly. Mopeds, especially, are very economical in their use of fuel, and for many young people who live in rural areas they provide an essential lifeline. I am sure that the right hon. Member for Westmorland and Lonsdale, who represents a rural constituency, will appreciate that. Motor cycles and mopeds enable young people to enjoy social facilities and to undertake journeys to places of further education and training.
I have received a petition from Mr. Victor Thomas of the Old Manse, Stove, Sandwich, Shetland and some of his friends and neighbours. It emphasises that the motor cycle is an environmentally friendly vehicle and is a necessity to many. In most instances a motor cycle uses less fuel than a motor car.
The Minister sought to give an assurance in Committee that the Government were not seeking to penalise the honest motor cyclist by raising the cost of VED to cover the loss of revenue because one third of motor cyclists do no pay VED, but one cannot help feeling that that is precisely what the Government are doing. The hon. Member for Wrexham (Dr. Marek) read out correspondence that seemed to give that impression. He read out correspondence in Committee in which a Treasury spokesman was quoted as saying that it was a measure of inflation and that the higher rate would recompense the many evasions in the form of unpaid licences. If that is the Government's approach—a hidden agenda that means that those who are honest are having to bear the burden of subsidising those who are dishonest—their weak case is undermined.
The right hon. Member for Westmorland and Lonsdale protested against such a principle being incorporated in our taxation. I have no doubt that many people will welcome his support for local authorities that find that they have to place an added poll tax burden on many payers because of the non-payment of others.
Two months have passed since the increases in VED for motor cyclists were discussed in Committee. I hope that the Minister has been made well aware of the strong feelings of motor cyclists. They have been singled out, as it were, for increases in VED. In percentage terms, the increases will be punitive. I hope that the Minister has had a chance to reconsider her position.

Mr. Cryer: I, too, have received many letters from constituents about the unfairness with which the Government have levied an extra tax on motor cyclists.
Motor cyclists attract a good deal of prejudice because sometimes their machines are not sensibly used. The exhaust systems of some machines are not properly fitted and are ineffective, and we know that motor cycles with defective silencers are ridden late at night. To criticise motor cyclists on that basis, however, is to criticise at one fell swoop all the keen motor cyclists who behave properly, who keep their cycles well maintained, who take pleasure in their use and who in many instances find them to be a necessity.
The Government's deregulation of bus services—not only in rural areas—has meant that a service can no longer be provided if a profit cannot be made. No bus company will be willing to tender if it is impossible to make a profit, and a passenger transport authority is not permitted to provide a subsidy for a service. There is therefore a greater emphasis on personal transport, and the cheapest form of that transport is a motor cycle or moped.
The Government are militating against its use. It has been suggested that an increase in the licence fee for a motor cycle will act as a deterrent and will reduce the high rate of accidents, but that is not the correct approach. If that were the Government's attitude, I am sure that they would have increased it to try to obtain some shadow of virtue from a situation which has very little virtue attached to it.
If the Government are concerned—as we all are—about the rate of accidents involving motor cycles, other measures are required. They include better training, although a fairly comprehensive training scheme has been introduced in the past few years; a more comprehensive motor cycle test involving details of mechanical efficiency if lack of such knowledge is a contributory factor to accidents; and more courtesy from the other vehicles that we have discussed—the HGVs—which, by virtue of their size, are sometimes involved in accidents with motor cyclists because of the comparatively diminutive size of the latter. Those factors must be tackled separately. The increase in vehicle excise duty should not be used as an excuse to deter people who wish to take up motor cycling.
Hundreds of thousands of motor cyclists are sensible and careful; they operate their machines well and find them of great use and importance in gaining access to work and leisure activities. We must take those people into account, especially when they use British motor cycles—and not, as I suspect that the right hon. Member for Westmorland and Lonsdale does, imported BMWs—and when they take a specific interest in maintaining the vestiges of what was once, I suppose, the strongest and most powerful motor cycle manufacturing industry in the world, although, along with much other manufacturing industry, it has, alas, been reduced to a shred of its former glory. Such people have our added support, but in general, whatever machines motor cyclists ride, they deserve a better deal from the Government. I hope that, even at this late stage, the Minister will try to wrest some justice from an unjust decision.

Mrs. Gillian Shephard: It is interesting and perhaps rewarding to see that at this time of the morning the House can become emotional about this issue. I shall make three main points.
First, I fully accept that, although one third of motor cyclists evade paying vehicle excise duty, that means that two thirds pay it. The vast majority of motor cyclists are responsible, careful and, in view of this debate, very enthusiastic drivers. However, much mention has been made of motor cyclists receiving a raw deal, and swingeing and unfair increases of 50 per cent. have been bandied about. We are in fact talking about increases of £5 a year or £10 a year. They are not inconsiderable sums, but, balanced out over the weeks, they represent 10p or 20p a week which is less than the cost of a packet of crisps. Other people might more easily be able to equate that figure to fractions of the cost of a pint of beer or of a packet of cigarettes. I do not accept that such figures represent swingeing increases that cannot be met.
Secondly, part of our purpose was to restore the balance between cars and motor cycles by raising the VED by a modest amount to bring the two taxes more into line.
Thirdly, part of our purpose was to increase the VED paid by motor cyclists because a result of a decision taken in 1985 to freeze VED has been to reduce the real value to such an extent that the evasion rate has increased

unacceptably. As I said, the latest estimate is that one third of all users avoid paying tax, and the consequential loss of £9 million is not inconsiderable. Some hon. Members might applaud the solution of abolishing VED, but to do so would create considerable difficulties in maintaining a vehicle register and making effective insurance and MOT checks.
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I made it clear in Committee that it is not our intention to recoup from the honest motor cyclist the revenue lost through evasion, or to penalise the motor cyclist relative to the car driver. Motor cyclists still pay less tax than car drivers in proportion to their share of the cost of the road network.
It is argued that as motor cycles are generally more fuel-efficient than cars, and usually use unleaded petrol, we should encourage their use. My answer is that they already pay considerably less in fuel duty per mile travelled. I do not disagree with the claim that motor cycles cause less wear and tear on the roads than cars, which is why their VED is still, at most, half that of cars.
People choose to use either a motor cycle or a car for a host of reasons, of which the tax payable is only one. Comfort, capital cost, running costs, and safety all play their part in their decision.
We have tried to achieve a more neutral taxation regime as between the car and motor cycle, and it is now less weighted towards motor cycles than it was. The increase of £5, or £10 a year at most, is small. The fact that motor cycles cause less wear and tear on the roads is reflected by the low rates of VED that they still attract in comparison with cars. Motor cycles that are more fuel-efficient pay less in fuel duty per mile—and that is another incentive. The proposed increase is modest, and I hope that the House will accept it.

Dr. Marek: The Minister said that the increase is designed to bring motor cycle tax more into line with that charged in respect of motor cars. As far as VED is concerned, the ratio has been fixed for five or six years, but the Government have now altered it, so that motor cycles will attract an increased ratio of road tax in comparison with motor cars.
The Minister justifies that change by saying that motor cycles use less fuel, so she is effectively taxing an environmentally friendly mode of transport. The new tax reflects the Government's anti-green policy, and it is extremely disappointing that they show no regret or contrition, and can offer no logical explanation for their action.

Amendment negatived.

Clause 7

BEER DUTY

Mrs. Gillian Shephard: I beg to move amendment No. 22, in page 8, line 4, at end insert—
'"the Commissioners" means the Commissioners of Customs and Excise;'.
This technical amendment removes any possible uncertainty, and it is one about which I have written to the hon. Member for Newcastle upon Tyne, East (Mr. Brown). It defines the commissioners mentioned in the two freestanding provisions as
the Commissioners of Customs and Excise".


No difficulties arise in respect of the clause's other references to the commissioners, because a definition is already provided for in the legislation being amended.

Amendment agreed to.

Clause 19

VEHICLES LEASED TO THE HANDICAPPED

Amendments made: No. 16, in page 14, line 42, leave out 'the lessor is a charity'.
No. 17, in page 14, line 43, at end insert
'the lessor is—
(a) a charity, or
(b) a person used by a charity for the purpose of making supplies which attract relief under this section."'….

Clause 52

INCOME TAX (BUILDING SOCIETIES) REGULATIONS I986

Mr. Peter Bottomley: I beg to move amendment No. 45, in page 36, line 31, leave out from beginning to 'this' in line 32 and insert
In relation to any building society whose accounting period ended before 1st October in the year of assessment 1985–86.'.

Mr. Deputy Speaker: With this, we may take the following amendments: No. 29, in page 36, line 31, leave out from 'society' to 'this' in line 32, and insert—
'(a) which commenced proceedings to challenge the validity of the regulations before 18th July 1986, or
(b) which, after 18th July 1986 but before 19th March 1991, commenced proceedings for the recovery of money paid by it, being proceedings taken as a result of the outcome of earlier proceedings of the kind to which paragraph (a) of this subsection relates, or
(c) which, after 18th July 1986 but before 19th March 1991, made any payment as provided for by the regulations, and which, in relation to such payment, gave written notice that it disputed the validity of the regulations.'.
No. 30, in page 36, line 32, leave out 'before 18th July 1986' and insert
'or to recover money paid by it on the basis of such a challenge made by it or by any other building society before the date on which this Act received Royal Assent.'
No 31, in page 36, line 32, after '1986', insert
'or in relation to a building society which since 18th July 1986 but before 19th March 1991 commenced proceedings for the recovery of money paid by it, being proceedings taken as a result of the outcome of earlier proceedings to which this subsection relates'.
No. 32, in page 36, line 32, after '1986', insert
'or which was referred to in an affidavit sworn before that date as expressly supporting such proceedings and lodged in the Court in the course of such proceedings.'.
No. 46, in page 36, line 32, after '1986', insert
'or would have done so but for its reliance in good faith on the view that the liability of every building society under the regulations would be determined according to the decision of the court in proceedings which were commenced before that date.'.

Mr. Bottomley: If I am given an opportunity, I shall seek to divide the House on amendment No. 29, which brings together a number of the ways in which building societies could reasonably expect to take the benefit of the result of the judicial review that followed the Finance Acts 1985 and 1986, the regulations under the 1985 Act and the

application for judicial review made by the Woolwich building society in the High Court, the Court of Appeal and the House of Lords.
I do not intend to try to rally as many hon. Members as possible to join me in the Lobby, although if Labour Members chose to do so that would be very nice. I want it to be made clear in any subsequent judicial review proceedings—others have been instituted, meaning that the saga that has continued for the past five years may continue for a further five—that the House of Commons was not told in 1985, when the proposals for the change were made, that the Revenue intended to take a tax advantage. That is a neutral expression used recently by my hon. Friend the Economic Secretary. The Revenue proposed to take advantage of six months' tax on the Woolwich, the Leeds and some other building societies.
There are three ways of describing the taxation that is at issue. One is to call it "double taxation". To an extent, my hon. Friend the Economic Secretary conceded that in the fifth sitting of the Standing Committee. Another way is to call it "the gap"; my hon. Friend has described it thus on other occasions. He has often used the form of words employed by counsel for the Treasury in the High Court, who argued that the tax under consideration had been deducted from depositors and members of building societies.
The third description—used recently in a letter, from which I think I have permission to quote, from my hon. Friend the Economic Secretary to the president of the Leeds building society—is "tax advantage"; we could, indeed, mention tax disadvantages as well. Whatever expression we use, and whether our chosen expression is pejorative or merely matter-of-fact, we are talking about between £250 million and £400 million.
In the past few days, it has emerged that discussions were held between either the Revenue or the Treasury and building society representatives in 1985. I do not intend to go into the details, because I do not know them. Besides, confidential discussions should remain confidential unless there is good reason to refer to them. I do not accuse my hon. Friend of not having good reason.
Let me say to my hon. Friend—and, through him, to his officials in the Treasury and the staff of the Inland Revenue board—that I am grateful for many of the replies that they have given. In the civil service, it is very difficult to be accountable in detail, and to be able to set out in detail all the reasons why any particular action was taken, especially if it was taken six years earlier. That is one of the differences between public service and the private sector.
We heard in the 1985 Budget statement that there would be no additional revenue from the sensible change that was proposed—that building societies, instead of paying in each tax year a sum to satisfy their tax liabilities or those of their members, would make payments quarterly based on what had happened in the actual financial year.
It was clearly understood in the House previously that the payment made on 1 January in each tax year would satisfy a society's liabilities in that tax year, although the sum came out of a society's dealings with its members and depositors in the previous year. That much is common ground. It is also common ground that the press notice put out by the Treasury, or the Inland Revenue—I forget which, but it does not really matter—at the time of the 1985 Budget said that there would be transitional arrangements.
Many people could have believed that those transitional arrangements were used to refer to the fact that under the new system of accounting for tax quarterly—14 days after the end of each quarter—the system would begin in a quarter starting on 1 March, not in a quarter starting on 6 April. It would have been perfectly reasonable for building societies and others to assume that the transitional arrangements reference was to that and not necessarily to going after extra taxation for a year for which many building societies had already fully satisfied their tax liability.
The only other reference appeared in a footnote to the Red Book issued on Budget day stating that there would be some public sector borrowing requirement effect. The Committee considering section 41 of the Building Societies Act 1986 and the extension of powers to the building society commissioners did not believe that the phrase "some effect on PSBR" was a full way of describing what may have been in some senses a deficit of £76 million to the Inland Revenue in the coming year or a tax advantage to the Revenue of between £250 million and £400 million.
There was a debate on the matter during the Committee stage of the 1985 Finance Bill and I have referred to the debate in the Committee considering the statutory instrument dealing with section 41 and the powers of the building society commissioners. Dr. Oonagh McDonald was wrong when she referred to the effect of £50 million.
I want to refer to some of the parliamentary answers that I have received recently on the matter. I asked my right hon. Friend the Chancellor of the Exchequer
what would be the effect of the removal of Clause 52 of the Finance Bill on the ability of the Inland Revenue to retain certain disputed tax paid by building societies.
The answer from my hon. Friend the Economic Secretary was:
Whether or not tax paid under the transitional provisions in the 1986 Building Societies Regulations is repayable would, in the absence of Clause 52, depend on the particular facts of each case.
People outside this place have told me that it would have been far better if the Government had not announced in the 1991 Budget that they were going to introduce what started out as clause 50 and is now clause 52. It would have been much better to have left it the way Patrick Jenkin left it on Report during proceedings on the Finance Bill of 1986 to have the matter fought out in the courts. We have a situation that is created by retrospective or retroactive, or both, amendments to the Finance Act 1986 which gave effect to regulations that were misdrawn under the Finance Act 1985.
As a result of lack of full description about what was happening in 1985 and together with the debate on the Floor of the House on 17 July 1986 and the cascading decisions of the High Court, the Court of Appeal and the House of Lords, we have had a mixture of debate and legal decision. That was revealed in discussions upstairs in Committee on this Bill when my hon. Friend the Member for Beaconsfield (Mr. Smith) and the hon. Member for Brent, South (Mr. Boateng) quizzed my hon. Friend the Economic Secretary. There was a mixture of what the courts held was in law and what the courts and others believed was in Parliament's mind. Very little of that had anything to do with what happened in 1985 when we began to allow for some potential consequential decisions following the change in the basic way in which building societies pay taxation.
We are talking about substantial sums. In a reply to me dated 8 July, my hon. Friend the Financial Secretary refers to the Inland Revenue statistics for each year since 1985 and recounts the schedule for composite rate of tax on building society interest for each year since 1980–81. I will cite the figures to give some idea of the sums involved. In 1980–81 the figure was £1,217 million. It rose the following year to £1,425 million and in the following year, 1982–83, it was £1,583 million. It was roughly the same in 1983–84. In 1984–85, it was up to £1,844 million. There is then a run of four years—1985–86 to 1988–89—in which it was approximately £2,600 million. In the most recent year for which figures are available-1989–90—it was £3,713 million. We are talking about very large sums.
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The amount of money changes because of a number of factors, including interest rates, tax rates and the level of deposits. In the long term, if building societies become a popular medium through which to accumulate savings, that will be one influence.
From year to year, the dominant influence is the interest rate. It is difficult to decide how much of the change in the amount raised by the Revenue from building societies on the composite rate tax changed between 1985–86 and 1986–87. My hon. Friend has said that it would be disproportionately expensive to work that out. However, we need to find out what is likely to have happened.
I return for a moment to 1985. It is clear from the Budget speech that there was not a full explanation. It is clear that there was not a full debate in Committee and it is clear that there was not a full debate on Report.
The first bit of information that we have available to us is an article which I was grateful to my hon. Friend for drawing to my attention. It was written by Richard Northedge and appeared in The Daily Telegraph on 29 July 1985. The headline was
Societies fight £500 million double tax demand.
The article went on in fair detail, dealing mainly with the Woolwich and with the Leeds, and talks about the societies with a 30 September year end which would have to pay double tax for six months.
I have asked Treasury Ministers whether either the Treasury or the Inland Revenue responded in public at the time of The Daily Telegraph report. My hon. Friend has told me that he is not aware of any such response. That is an accurate answer, because he is saying not that there was not a response, but that he is not aware of one. It is regrettable, because if the issue turns on whether the tax advantage, or the tax that people were going to go after for six months from the Woolwich, from the Leeds and from others for a year in which the tax liability—and there is no dispute about this—had been fully satisfied by the payment made on 1 January, it would have been better if there had been a public response, and if the argument about what is double taxation or what is taxing the gap had started at the time when the issue first came forward in public.

Mr. Maples: The Treasury is not in the business of responding to every article that is written in newspapers. My hon. Friend cannot read anything into what he has described. My hon. Friend has sought, through his parliamentary questions and correspondence with me, to establish that it was not the intention of the Government at the time of the 1985 Budget to tax what I call the "gap


period". I gave him the article, which was a clear sign that in July of that year the matter was raised in The Daily Telegraph. Everyone who reads that paper and every building society must have been aware of it. In those circumstances, it would be appropriate for my hon. Friend to agree that it was clear to all the building societies at that time that it was the Government's intention to tax that period.

Mr. Bottomley: Nothing that my hon. Friend has said is in disagreement with what I have said. I have said that it is regrettable that the issues were not brought out into the public debate. I was not criticising anyone.
If my hon. Friend wants me to give way again, I will happily do so, because I am trying to put a fair exposition to the House bringing together the various things that have happened over the past six years.
I asked my right hon. Friend the Chancellor whether he would list all other newspaper, parliamentary or ministerial reports before 29 July 1985—that is, before the Richard Northedge article—which made explicit reference to a proposal to claim tax from building societies in relation to any period from their year end to the end of the financial year 1985–86 separate from the tax payments that had satisfied the liability for that full financial year. My hon. Friend has responded today. It is important to acknowledge my gratitude for the speed with which he has responded to a number of these questions, and to say that I understand his comment that the information is not readily available and cannot be provided without disproportionate cost.
However, before the article of 29 July 1985, there is no record of any explicit reference to this issue, despite the fact that we had had the Budget, and the Second Reading, Committee and Report stages of the Finance Bill. The only reference was when Oonagh McDonald raised it in Committee when, apparently, the figures were so different from those that may or may not have been available at the time that that cannot be regarded as a full and open discussion. My hon. Friend may say that officials or Ministers had been having full discussions with the building societies. That is fine—but it is not discussions with the House of Commons. I do not think that there is any reference on the Floor of the House or in Committee to what was going on. That became clear only later.
We move on to when it was decided to propose legislation to obtain what I call "additional tax" from building societies for the financial year 1985–86 and when and how an estimate was published of the financial effect on total tax receipts and on the tax to be paid by societies. My hon. Friend repeats his view that the 1986 legislation, changing the way in which building societies account for the tax on interest and dividends paid, did not involve additional tax. I am still trying to move us forward from 1985 which is when we were looking at the consequential provisions tied to the generally accepted switch in the method of taxation.
We have had some useful information today from my hon. Friend, showing calculations that produce a reduction in the revenue received of £76 million. I am not sure how it will be designated in Hansard but it may be Question 159. It deals with the available information, listing, for the building societies with their year end in each

quarter, an estimate of the gains and/or losses respectively from the transitional arrangements and from the change to the new tax system in 1986–87.
I hold the view that that minus £76 million may be based on the fact that the year in question does not have 12 months of tax receipts. There is a switch from one system to another, with the new system starting on 1 March, and with that tax not being received until the subsequent year. The table purports to show that, although some societies, including the Leeds and the Woolwich with their September year-ends, were hurt by the change to the new system, the building society movement in the aggregate benefited to the tune of £76 million or 3 per cent. of what would otherwise have been raised under the old system.
Presumably, there is a short and total answer to this. I suggest that the amount of tax that would have been due in 1986–87 if the old system had continued would have discharged all liability upon interest paid to the investors up to and including 5 April 1987. That is a 12 month-period. Under the new system, the amount due in 1986–87 discharged only liabilities on interest paid to investors up to and including 28 February 1987. In other words, the table compares the cost of 12 months' liability with the cost of less than 11 months' liability or—to put it in a way that will be recognisable to those who drafted the regulations—the table may recognise the double tax effect of regulation 11, but not of regulation 3.
Some of this is clearly supposition, because the information on which I am working has been available to me—and through me, to the House—only recently. It is regrettable—I am not blaming anyone, but it is regrettable—that that is so in 1991 when we are dealing with a saga that started in March 1985. It would have been better to have had this out and to have discussed it at that time. The tax in respect of the stub of one month and five days—from 1 March 1987 to 5 April 1987—did not have to be paid until 14 June 1987, but was it payable at the composite rate of tax for 1986–87? This takes us into one of the invalid regulations that is dealt with by clause 52(2) and (3). The necessary adjustment to compare like with like is to pro-rata the total figure for the new system—the 1986–87 receipts, which amount to £2,868 million—to reflect the missing 36 days. We are talking about over £240 million a month, so 36 days will give us more than a month's worth of tax.
Assuming that interest payments are spread evenly throughout the year, the sum of which may be generous because the March quarter is likely to be a heavy payment, the calculation is £2,868 times the ratio of 365 divided by 324, which has been calculated to be £3,182 million. That would be an extra £238 million or an 8·1 per cent. increase in taxation for the building societies movement in aggregate, instead of a 3 per cent. reduction.
The suppositions and assertions that I am making may not be right, but they are the best that can be done with the information made available to the House in the past few days or hours. There are some uncertainties that I shall not go into about whether the figures include the Woolwich and what percentage of composite rate tax has been employed to calculate the old system and new system receipts respectively.
There are also various other doubts. It is suggested that regulation 12 outbalances regulation 11, which deals with what one might call the gap or double taxation issues. There are discrepancies, which I am sure can be explained,


between the figures and those quoted in the Inland Revenue statistics in the Chancellor's answer to me in Hansard of 8 July.
I suggest to the House that what has happened up to now has been clearly unsatisfactorily in several ways. First, the parliamentary draftsmanship was imperfect. That is clear from the need to introduce the amendment in the 1986 Finance Bill at a late stage. That was done to trump the Woolwich application for judicial review. It did not succeed. In the debate on 17 July 1986, when Patrick Jenkin raised the issue, two—[Interruption.] Madam Deputy Speaker, if I go on hearing barracking from behind me, my speech may get longer rather than shorter. It would be helpful to have—

Madam Deputy Speaker: I assure the hon. Gentleman that I can hear him very clearly.

Mr. Bottomley: I can hear those behind me very clearly.
The aim of my last remark was to draw the attention of the House to the two references in the debate on Report on 17 July 1986, that is to say, one day before the cut-off point in clause 52, to the fact that the Leeds was taking proceedings. I do not know whether it commenced proceedings or not, but it may turn out that those references have some substance that would stand up in court. We may find that not only the Woolwich was able to keep its £70 million plus. We may discover that the Leeds could keep its £57 million if it had done anything that could have been construed as opening legal proceedings before the cut-off point. We would then be left with what might be called the minnows and some of the other small societies such as the Greenwich, which proportionately were hit even harder than the Leeds or the Woolwich.
We have already established from the information how building societies have their years end in different quarters and how some of them gained by what have been called the transitional changes—the changes in the timings of their payments of tax. We end up with what is clearly hybridity except that the way in which it is covered in clause 52 is to deal with classes of building societies which include the Woolwich alone or the Woolwich and the Leeds, if my references to the Report stage of 1986 are correct.
The position is highly unsatisfactory. The draftsmanship is unsatisfactory. The near hybridity is clearly unsatisfactory. We then come to whether the Government are seriously encouraging all building societies to join in duplicate judicial review proceedings along the lines of those started by the Leeds Permanent building society last week. There is a clear difference between a tax appeal and judicial review. I am not aware of other occasions when either the Treasury or the Inland Revenue has not allowed judicial review to be regarded as a statement of the law.
To say that a tax appeal applies only to the people who appeal may or may not be reasonable, depending on the circumstances. Most people would accept that one application for judicial review should state the law for each of those affected by the law itself. That is clearly a view which is shared by my right hon. and learned Friend the Attorney-General. When I asked him—I may have got the words slightly wrong—whether it was normal or appropriate for many people to apply for judicial review, he said that it was not necessary. That is a fair comment. If we pass clause 52 and the second application for a judicial review, by the Leeds, is not overturned, judicial

review appeals will be duplicated by the whole class of people who could be affected. It is unsatisfactory to have drawn the line at 18 July, which is a reason why it is appropriate to vote on amendment No. 29.
1.15 am
People will see in tomorrow's Hansard the useful answer from my right hon. Friend the Prime Minister. I asked
if Ministers at the time of the 1985 Budget intended to lay regulations to create liability for tax relating to a year for which the building societies Composite Rate Tax liability had been fully discharged; what estimate of the money involved was available to Ministers at the time; and what, and when, an estimate was first made available to Parliament.
He replied in part:
No estimate was made at the time, of tax on interest accruing between the end of societies' accounting periods ending in 1985–86 and paid before the end of that tax year.
I may be contradicted by those who were Ministers at the time and I would not want to challenge them, but I believe that if at the time of the 1985 Budget there had been a clear intention, it would have been stated, the sums would have been calculated, there would have been an estimate and the House would not be in this predicament.
My final point is to warn the House about getting into the habit of letting double taxation or a tax advantage of £250 million go by, even after judges have said that a highly peculiar thing has happened, but presumed Parliament knew what it was doing at the time.
I want to assert strongly that as a Member of the House in 1985 I did not have a clue that that was going on, although I had had friendly relations with the Woolwich building society ever since I was elected in 1975. If I did not know that then and if the conclusion to the 1986 debate was that the matter should be tested by the courts because it would not be fully fought through during the late stage of the Finance Bill here, what with the courts saying "No" and Parliament not saying "Yes", I am glad that at least one Member of this House, with support from various others during the past few weeks, has been pursuing this point.
If ever Back-Bench Members, whether on the Government or Opposition side, start allowing Parliament to be treated as it undoubtedly was treated in 1985, what with the conclusions of the 1986 debate, which was not satisfactory, and this near hybrid approach to the results of judicial review, this Parliament might as well scrap its work and go home.
Anyone can provide a Government. There are 160 countries with a Government. It is easy to be in government. It is far better to work in partnership with Parliament. That is why I am grateful to my hon. Friend the Economic Secretary and his officials who provided the information so that tonight at least we could have the debate that we should have had in 1985—six years ago.
I hope that this saga will not continue for the next five years. The way to stop it is for the Government to get together with building societies and sort out an acceptable compromise. It may be rough justice to the Government, but they are dealing with only 1·5 per cent. of the income that they have had from building societies in the past seven years. It will put an unsatisfactory situation right.

Mr. Bowen Wells: I shall be brief. This is a worrying matter which should concern the House greatly, first, because of the accusation of double taxation and, secondly, because of the retrospective nature


of the clause that the Government want to enact in the Bill. Therefore, together with my hon. Friend the Member for Eltham (Mr. Bottomley) and many others, I have been into the matter in some detail.
I have put strongly to building societies that they should set out for the House and in their publicity exactly how they have been double taxed. I have asked them to provide a worked-out example showing where they have deducted tax once and then have had to pay another tax on the same sum to the Government. They have failed to reply and I do not believe that they can, otherwise they would have done so. I am inclined to believe the Government's contention that it is not double taxation. They are merely trying to collect the money that was deducted by the building societies for payment to the Inland Revenue to pay it over to the Revenue.

Mr. Tim Devlin (Stockton, South): Will my hon. Friend give way?

Mr. Wells: No, I will not.
The only thing to which my hon. Friend the Economic Secretary should reply is the recently revealed information to which my hon. Friend the Member for Eltham referred about the building societies paying more money to the Revenue as a result of the calculation on an 11-month year, not a 12-month one. That is extremely worrying because it suggests that the clause has been wrongly administered. I hope that my hon. Friend the Minister will be able to satisfy the House that all he is trying to collect is that which the building societies have deducted from their members, which is due to the Inland Revenue.

Mr. Devlin: The speech of my hon. Friend the Member for Hertford and Stortford (Mr. Wells) simply will not do. My hon. Friend has not even addressed the House of Lords judgment on the matter. The issue has been through the courts and examined by some of the best legal brains in the country. They have come to the conclusion that double taxation has occurred.
It is not good enough to say that, because the building societies will not give a simple worked example, they do not have a case. It will not do for my hon. Friend the Minister to repeat what he has said in correspondence. He cannot, simply by assertion, say that there has not been double taxation.

Mr. Maples: I think that I must be one of the few people who have read the House of Lords judgments—I read them all again this morning because I thought that they might be mentioned. If my hon. Friend the Member for Stockton, South (Mr. Devlin) can find for me in the House of Lords judgment where it is held to be double taxation, I shall be extremely interested. There is one reference to it in the leading judgment that states that the effect was
in a sense, to tax them twice.
That judgment did not criticise the Court of Appeal that comprehensively overruled the court of first instance on that point.
I dealt with this matter at considerable length in Committee and I do not intend to bore the House by going over it again. At the end of the Committee proceedings I believe that most members of the Committee found that they were convinced by, or at least reasonably happy with, the Government's position.
I should deal with a couple of issues raised in the debate. I am grateful to my hon. Friend the Member for Hertford and Stortford (Mr. Wells) for the points that he raised, and his criticism of the building societies is a telling one. No one has been able to show me any pound of income that is being taxed twice.

Mr. Peter Bottomley: What about the 11 -month year?

Mr. Maples: In 1986–87 there were four quarters. The period taxed was from 1 March 1986 to 28 February 1987. Therefore, it was a 12-month period, although it did not coincide with the tax year. It started a month earlier and finished a month earlier, but there were four quarterly payments in that year. My hon. Friend the Member for Eltham (Mr. Bottomley) is not right to say that the figure of £76 million less revenue that I gave was not an accurate figure because 11 months only had been taken into account. Four full quarters were taken into account. Even though they did not coincide with the tax year, four quarterly payments were made during that year. As a result, as we said in 1985, no additional revenue was generated as a result of the proposal—£76 million less was collected.
My hon. Friend the Member for Eltham has tried to make a lot of the House not being told what was happening in 1985. As I have said to my hon. Friend in correspondence, there were clear minutes of meetings before the Budget between the then Economic Secretary and members of the Building Societies Association. From those minutes it is perfectly clear what was intended.
In view of the furore that has developed over that matter this year, I am surprised that none of those building societies briefed a Member of Parliament like my hon. Friend the Member for Eltham. They could not have briefed him then because he was a member of the Government who passed the proposals, so I suppose that they would have had to have briefed some other Member of Parliament. I am surprised that they did not do so because they were aware of what would happen.
My hon. Friend the Member for Eltham suggests that clause 52 is not necessary because the general law could simply be applied. There is considerable doubt about that. The matter has been raised in the past and was not first raised by the Leeds building society the other day. It would rely on the defence that money paid under a mistake of law cannot be reclaimed. That would turn on the details of documentary evidence which, for arbitrary reasons, might differ according to the case. It is better to set the matter to rest by enacting clause 52.
The final point that my hon. Friend the Member for Eltham made was that there was a difference between a tax appeal and a judicial review. Clearly, they are different procedures but it is difficult to see the substantive difference in this case.

Mr. Devlin: Will my hon. Friend give way?

Mr. Maples: Let me deal with that point.
Previously, a taxpayer may have won a case and the Government would have then changed the law. For example, in the Padmore case the Inland Revenue sued Mr. Padmore for some tax that he declined to pay on the ground that he was not entitled to pay it. Mr. Padmore won the case, but that is not how the Woolwich building society wanted to behave. It did not want to refuse to pay the tax. Instead, it paid the tax and had an explicit


agreement with the Revenue that it would challenge it by a process of judicial review and that, if it won, the Revenue would refund the tax. No other building society made that agreement. It would have been open to them to bring judicial review proceedings of their own and have those joined with the proceedings of the Woolwich, or to make an agreement with the Revenue that they would pay under protest and would get a refund of the tax if the Woolwich won its case. That is what happened in the Padmore case. Three other taxpayers made an agreement with the Revenue that they would be bound by the decision in that case. They benefited from the judgment, as did Mr. Padmore, whereas the law was changed for everyone else. Therefore, we are not departing from a fairly standard practice.

Mr. Devlin: Will my hon. Friend give way?

Mr. Maples: I should just like to finish the point.
It may interest the House to know that, when the first tax payments for that period were made, the Woolwich and two or three other small building societies paid under protest. Only the Woolwich said that it would contest the case and it was as a result of that that this agreement was made. No other building society made those arrangements or paid under protest.
The building societies that have been at the forefront of some of the arguments that we are debating did not pay under protest or make any protest until after the Woolwich had won its High Court case, so I did not have much sympathy for those other societies. It seems reasonable that the Woolwich should be allowed to have its tax refunded because it won the case, but it is inconsistent with the practice that this Government and many previous Governments have adopted. Where the law has been held by the court not to be what it was thought to be, the taxpayer involved in that case benefits from that decision, but it is proper retrospectively to amend the law to catch everyone else. That is what we are doing in this case.

Mr. Devlin: In English law, a judicial review is and always has been a statement of public law. Any other person is entitled to rely on that statement. My hon. Friend the Minister is wrong to say that there is no distinction between a tax decision, which is the arbitration in a particular tax case, and a case of public law, which a statement that any other taxpayer, individual member of the public or corporation may fairly rely upon.

Mr. Maples: When the law is decided by the Court of Appeal or the House of Lords it is exactly the same, whether it is the result of a judicial review proceeding or a case brought by the Revenue against a taxpayer. Although the judicial review has existed for a long time, it is a proceeding that has been developed in the past few years. It has been used largely in connection with administrative rather than tax laws.
I have explained why the case was dealt with by a judicial review. It was because the Woolwich did not want to litigate the matter by refusing to pay the tax and then invite the Revenue to sue it. I understand why it did not want to behave in that way. One cannot argue that the law is different because it was decided as a result of a judicial review proceeding rather than any other way.

Mr. Bottomley: My hon. Friend mentioned an agreement made with the Woolwich to accept the result of the judicial review case. Did my hon. Friend mean to say that there was a formal agreement so that if the Woolwich won the case in the House of Lords it could keep the money?

Mr. Maples: My understanding is that the Woolwich paid the original tax owed for the gap period under protest and made an agreement with the Inland Revenue that the Woolwich would take the case to litigation and, if it won, the Revenue would refund the tax to it. There was an agreement to that effect, and no other building society made a similar agreement, although it would have been open to it to do so.
In the circumstances, unless there is any particular point that any hon. Member wishes me to develop on general aspects, I shall not continue. I invite the House to reflect on the amendments as they would allow societies other than the Woolwich to take advantage of the Woolwich judgment.

Mr. Bottomley: The simplest way to sum up the debate, which was valuable, but would have been better if it had taken place in 1985, is to refer to what Sir Nicolas Browne-Wilkinson said at the Court of Appeal. He said:
It is unnecessary to consider in detail the judge's"—
Mr. Justice Nolan's
reasons for rejecting the Revenue's argument since, in this court,"—
the Court of Appeal—
the Revenue has reversed its position.
The argument that the Revenue won in the Court of Appeal was exactly the opposite of the argument that it had put in the High Court.
It seems that if the Revenue is allowed to change its argument totally, and argue in the Court of Appeal that a building society was not accounting for the tax for building society members, the House should be able, not to change its argument, but to stick to the following two principles. The first is that one should not distinguish between the people affected by an application for a judicial review, especially when the Leeds was explicitly referred to in the affidavit proposed by the Woolwich—the two societies shared lawyers. I could not hear a lawyer telling the Leeds or any other building society to go to the expense of carrying out parallel judicial review proceedings. I think that such an occurrence was unprecedented—my hon. Friend the Minister may tell me that I am wrong.
Secondly, in the debate on the Floor of the House on the day before the cut-off debate in 1986, the Leeds was extensively referred to. It was twice assumed in that debate that the Leeds had commenced proceedings. It seems that it is wrong for the Treasury to come forward with a new amendment at a late stage of a second Finance Bill one year after the first to change the law, especially as it is now becoming clearer that those building societies at the year end in December gained from the provisions. The House should regard that as unsatisfactory.
My reason for calling for a vote on amendment No. 29 is not necessarily to win. I have not tried to organise a gang to defeat the Government, because I think that the Government should change their mind and acknowledge that the probing has led to the exposure of an


unsatisfactory position. In subsequent judicial proceedings, it should be possible for the High Court, the Court of Appeal or the House of Lords to understand that the House knew nothing of the implications of the affair in 1985, even though the Revenue and some building society officials may have done. Hon. Members are supposed to know what they are doing. Some of the judgments in the judicial review show that the judges had to decide the law as written by the House, and could not look behind it to see what hon. Members had in their minds.

Mr. Devlin: Would it not have been a great help to the workings of the House tonight if the Attorney-General had come to give us a statement of the law as it stands on judicial reviews? My hon. Friend the Minister, while well-meaning, is totally wrong.

Mr. Bottomley: I do not want to suggest that my hon. Friend the Economic Secretary is wrong on anything. He has a hard enough job anyway and has been put to some test in this debate and others. He has done better than any other Minister could have done, but I still believe that the Government are defending an unsatisfactory position.
Therefore, it is with great reluctance that I shall call for a vote on amendment No. 29, not amendment No. 45.

Amendment negatived.

Amendment proposed: No. 29, in page 36, line 31, leave out from 'society' to 'this' in line 32, and insert—
(a) which commenced proceedings to challenge the validity of the regulations before 18th July 1986, or
(b) which, after 18th July 1986 but before 19th March 1991, commenced proceedings for the recovery of money paid by it, being proceedings taken as a result of the outcome of earlier proceedings of the kind to which paragraph (a) of this subsection relates, or
(c) which, after 18th July 1986 but before 19th March 1991, made any payment as provided for by the regulations, and which, in relation to such payment, gave written notice that it disputed the validity of the regulations.'.—[Mr. Peter Bottomley]

Question put, That the amendment be made:—

The House divided: Ayes 6, Noes 119.

Division No. 211]
[1.34 am


AYES


Cryer, Bob
Wallace, James


Maxwell-Hyslop, Robin



Paisley, Rev Ian
Tellers for the Ayes:


Robinson, Peter (Belfast E)
Mr. Peter Bottomley and Mr. David Trimble


Skinner, Dennis





NOES


Alison, Rt Hon Michael
Chapman, Sydney


Amess, David
Chope, Christopher


Amos, Alan
Colvin, Michael


Arbuthnot, James
Coombs, Anthony (Wyre F'rest)


Arnold, Jacques (Gravesham)
Coombs, Simon (Swindon)


Baker, Rt Hon K. (Mole Valley)
Couchman, James


Baker, Nicholas (Dorset N)
Cran, James


Bennett, Nicholas (Pembroke)
Currie, Mrs Edwina


Bevan, David Gilroy
Davis, David (Boothferry)


Boscawen, Hon Robert
Day, Stephen


Boswell, Tim
Douglas-Hamilton, Lord James


Bowis, John
Durant, Sir Anthony


Brandon-Bravo, Martin
Emery, Sir Peter


Brazier, Julian
Fallon, Michael


Bright, Graham
Forsyth, Michael (Stirling)


Brown, Michael (Brigg &amp; Cl't's)
Franks, Cecil


Burns, Simon
Freeman, Roger


Butterfill, John
French, Douglas


Carrington, Matthew
Gale, Roger


Cash, William
Garel-Jones, Tristan





Goodhart, Sir Philip
Neubert, Sir Michael


Goodlad, Alastair
Nicholls, Patrick


Goodson-Wickes, Dr Charles
Nicholson, David (Taunton)


Greenway, John (Ryedale)
Norris, Steve


Gregory, Conal
Oppenheim, Phillip


Ground, Patrick
Paice, James


Hague, William
Patnick, Irvine


Hamilton, Rt Hon Archie
Peacock, Mrs Elizabeth


Hamilton, Neil (Tatton)
Porter, David (Waveney)


Hanley, Jeremy
Riddick, Graham


Hargreaves, Ken (Hyndburn)
Roberts, Rt Hon Sir Wyn


Harris, David
Rowe, Andrew


Hayes, Jerry
Ryder, Rt Hon Richard


Hicks, Mrs Maureen (Wolv' NE)
Sackville, Hon Tom


Howarth, Alan (Strat'd-on-A)
Sayeed, Jonathan


Howarth, G. (Cannock &amp; B'wd)
Shaw, David (Dover)


Hughes, Robert G. (Harrow W)
Shephard, Mrs G. (Norfolk SW)


Irvine, Michael
Shepherd, Colin (Hereford)


Jackson, Robert
Stanley, Rt Hon Sir John


Janman, Tim
Stern, Michael


Jones, Robert B (Herts W)
Stevens, Lewis


King, Roger (B'ham N'thfield)
Stewart, Andy (Sherwood)


Kirkhope, Timothy
Summerson, Hugo


Knapman, Roger
Taylor, Ian (Esher)


Knight, Greg (Derby North)
Thorne, Neil


Knight, Dame Jill (Edgbaston)
Thurnham, Peter


Lawrence, Ivan
Townsend, Cyril D. (B'heath)


Lennox-Boyd, Hon Mark
Twinn, Dr Ian


Lord, Michael
Viggers, Peter


Maclean, David
Waller, Gary


Malins, Humfrey
Wardle, Charles (Bexhill)


Mans, Keith
Watts, John


Maples, John
Wells, Bowen


Maude, Hon Francis
Wheeler, Sir John


Mawhinney, Dr Brian
Widdecombe, Ann


Mellor, Rt Hon David
Wolfson, Mark


Mills, Iain
Wood, Timothy


Mitchell, Andrew (Gedling)



Moate, Roger
Tellers for the Noes:


Moss, Malcolm
Mr. David Lightbown and Mr. John M. Taylor.


Moynihan, Hon Colin



Needham, Richard

Question accordingly negatived.

Clause 72

DEFINITION OF "NORMAL COMMERCIAL LOAN"

Amendment made: No. 23, in page 52, line 39, leave out from 'effect' to end of line and insert—
(a) so far as concerns the application of section 64(2) for the purposes of section 136A of the Capital Gains Tax Act 1979, in relation to claims on or after 1st April 1991, and
(b) so far as concerns any other application of section 64(2), in relation to disposals on or after that date.'.—[Mr. Maples.]

Clause 84

NON-RESIDENT SETTLEMENTS WHERE SETTLOR HAS AN INTEREST

Amendment made: No. 1, in page 60, leave out lines 31 to 34 and insert—
'(a) chargeable gains, whether of one amount or of two or more amounts, are treated as accruing by virtue of paragraph 2 of Schedule 16 to the Finance Act 1991 (gains of non-resident settlements chargeable on settlor), and'.—[Mr. Maude.]

Clause 93

CORPORATE BONDS

Amendments made: No. 24, in page 63, line 14, leave out subsection (1) and insert—

'(1) Section 64 of the Finance Act 1984 shall be amended as follows.'.

No. 25, in line 29, at end insert—
'(4) This section shall have effect—
(a) so far as concerns the application of section 64 for the purposes of section 136A of the Capital Gains Tax Act 1979, in relation to claims on or after 19th March 1991, and 
(b) so far as concerns any other application of section 64, in relation to disposals on or after that date (and, in relation to such disposals, shall be regarded as always having had effect).'.—[Mr. Maples.]

Clause 114

POOLS PAYMENTS TO SUPPORT GAMES ETC.

Mr. Denis Howell: I beg to move amendment No. 52, in page 79, line 34, after 'to', insert 'independently appointed'.
I shall detain the House as briefly as possible at this hour, but there are one or two matters that should be raised. I am glad that the appropriate Minister is in his place, the Chief Secretary to the Treasury. The right hon. and learned Gentleman is well known to be much concerned about the health of the arts and of sport, as I am.
I welcome the new trust proposal. I do not seek to oppose it or denigrate it. Indeed, the Government are worthy of great credit for having introduced it. It is the third trust to be established by means of reducing betting duty. One of the earlier developments was the establishment of the Football Trust, which might be regarded as the Howell trust, though it never is. I had some responsibility for implementing the scheme, having established it with the good co-operation of the Pools Promoters Association.
The second trust might be described as the Major trust. The Prime Minister, when Chancellor of the Exchequer, properly reduced betting tax after the terrible disaster at Hillsborough to produce money to try to implement the recommendations of the Taylor report to improve safety at sports grounds.
We now have a third trust for sport and the arts, which I suppose should bear the name of the Chancellor of the Exchequer. I welcome all the additional resources that are coming into sport. I think that everyone would agree that the Football Trust has done excellent work. It should be remembered that when it was established its objectives and its membership were properly agreed between the PPA and the appropriate Minister, which was me. That will not happen with the new trust which we shall establish under clause 114.
It is important to establish the purpose of a trust and the independence of the trustees. That was never better illustrated than by the remarks of the Minister for Sport last week on the proposed super league that is to be controlled by the Football Association. As the House may know, the Minister for Sport said that the second of the trusts to which I have referred, the Major trust, was created to provide money for football teams in the football league or the Scottish football league. As I understand it,

the Minister said on "Question Time" last week—and I gather that he has repeated it in a statement—that if clubs left the football league the Major money would no longer be available to them. That is a statement of profound importance. I understand why the Minister made it, and it is right that he did so in order that no one should doubt that the trust was for a specific purpose and that if that purpose no longer existed because teams took themselves out of the football league they would lose that support from the Treasury.
The trust established under clause 114 will, I understand, provide £40 million for sport and £20 million for the arts—all of which I welcome—as a result of a 2·5 per cent. reduction in betting duty. Although there is a reduction in betting duty, it will be taxpayers' money, as I am sure the Minister will agree and would like me to emphasise. When the concession was made, that was made clear at the time in public statements but not in the House. I believe that this is our first opportunity to discuss the issue.
We are establishing a new trust with considerable sums of money from the public purse—£60 million in all—without, as far as I can see, any consultation or co-ordination with the Arts Council or the Sports Council. That is one of the main reasons why I have raised the issue. When I went to the Sports Council the other day before tabling the amendment, I discovered that not only did it not know what policy the new trust would implement, but that it had been told by Treasury officials—I hope that the Minister will deny this or put us right—that there would be no co-ordination between the new trust, with its £40 million to spend on sport, and the Sports Council and certainly no cross-membership between the Sport Council and the trust.
That cannot be right. It would be ludicrous if there were no co-ordination between two separate trusts that provided public money—one created by the Bill and one a statutory body, the Sports Council. An organisation could apply for a grant to the Sports Council and be turned down—probably on good policy grounds—but could then make the same application to the independent trust. That would be nonsense. There must be a co-ordination of policy and strategy between the Arts Council and the Sports Council on the one hand and the new trust on the other. I accept that the new trust must have some financial independence, but it must also have regard to the existence and policies of the other statutory bodies which, in large measure, will be carrying out Government policy.
My second concern is the appointment of trustees, which is covered by the amendment. I mentioned the Minister's intervention—a very proper intervention—in the affairs of the trust set up to deal with the Hillsborough disaster. I appears that the trustees will be chosen entirely by the Pools Promoters Association, which is currently inviting nominations—which suggests that the Government have no input. It cannot be right that the members of a so-called independent trust that will get all its money from the public purse should be nominated by the PPA. I would prefer the trustees to be appointed by organisations specified in the Bill or by the Secretary of State. Persons wanting to nominate trustees would know how to approach the matter and that their candidates would be objectively assessed.
I am sure that no right hon. or hon. Member would think it correct for bookmakers or the tote to apply for membership of the Horserace Betting Levy Board, yet that


is a relevant comparison to draw to the attention of the Chief Secretary. There has been no public or parliamentary debate on that issue, but as taxpayers' money will be involved, perhaps there could be a requirement that the trust reports annually to Parliament. We could then review its policy in respect of both the arts and sport.
By and large, the Arts Council provides money for revenue purposes, not capital, whereas the reverse is true in the case of the Sports Council: it provides funds for capital requirements, not revenue. The two organisations' policies are diametrically opposed, but they must relate in future to the new trust.
I hope that the Treasury does not view the new trust as a substitute for a national lottery. This is not the hour to debate the merits of a lottery, but some of our friends in the Pools Promoters Association—which co-operates with the present Government as it did with me in providing money for sport and now for the arts—feel that the reason for the Government's enthusiasm is that they view the trust as a substitute for a national lottery. I believe that the two can run in parallel. The PPA's members, with their experience and technical ability, might be the best people to run a national lottery. In any event, I know that such a lottery has the approval of some Ministers, particularly the Minister for the Arts, who contributed an interesting article to the Birmingham Post last week.
In general, I support the trust, but I hope that the Chief Secretary will be able to provide further information, and set our minds at rest, in respect of some of the points that I have raised.

Mr. Mellor: I am grateful to the right hon. Member for Birmingham, Small Heath (Mr. Howell) for raising this subject, and for making a good many points very succinctly. I applaud all that he has done for sport over the years, and appreciate his interest and involvement.
2 am
I am also grateful for the warm welcome that the right hon. Gentleman has given the foundation, which is indeed an exciting venture. For us to have £60 million a year to disburse on sport and the arts represents a major development, and I am sure that we all wish the foundation well.
It is important to recognise that some £20 million of that £60 million is revenue forgone from the reduction in pools betting duty; the rest reflects changes in the stake money, and is a contribution from the Pools Promoters Association. It was apparent to the Government that both sport and the arts needed more funds. Various fiscal changes were suggested in relation to sport, particularly youth sport, but it was extremely difficult to bring them about without distorting the tax system. The foundation seemed a good alternative.
The right hon. Gentleman mentioned relationships with the Sports Council and the Arts Council. I hope that there will be rapport between the various organisations. However, the fact that an arts organisation does not qualify for support from the Arts Council does not mean that it is not worthy of support. Although the Arts Council's funds have been increased, it always has to establish priorities. I recall my involvement with the National Youth Orchestra, which lost its grant because the Arts Council felt obliged to support professional rather

than amateur youth activities. The fact that the foundation will provide an alternative source of revenue need not prevent sensible understandings from being reached between the various bodies.
The foundation is private. It is not intended to be a public body, for the reasons that I have already given—although there will be a link with the Department of Education and Science, and, in particular, the Minister for the Arts. A representative of the Department will sit in on trust meetings.
I shall not go into detail about the appointments. Let me tell the right hon. Member for Small Heath, however, that his efforts in regard to the Football Trust were not in vain. Many of the arrangements made for the trust are mirrored in the arrangements being made for the foundation, and the appointments broadly follow the model of the new Football Trust set up last year. There will be 11 trustees, four of them nominated by the individual pools companies and seven nominated by the Pools Promoters Association. The Minister for Sport will be consulted on the appointment of the chairman.
Because—as the right hon. Gentleman said—some of the foundation's resources come from duty forgone, we shall want to be satisfied that the trusteees are fit and proper persons before agreeing that the cut in betting duty should go ahead. When we know who the trustees are, we shall know whether the foundation can command support and confidence. I believe that it can and will, and that it will be none the worse for being independent of Government, in at least as crucial a way as the right hon. Gentleman advocated.
Quite plainly, the Pools Promoters Association understands that the trustees must be fit and proper persons in order to merit the reduction in betting duty. I hope that we shall be able to make a more substantive announcement about the foundation before the recess so that the foundation can get down to work at the beginning of the next football season. In the meantime, if the right hon. Gentleman has any further suggestions, I would be pleased to consider them.

Mr. Howell: I am grateful to the Minister, but I cannot understand why the further announcement, which I welcome, is to made before the new football season because I understand that the trust cannot spend any of its money on football. I understand that horse racing and football were excluded as proper objectives for the new trust.

Mr. Mellor: That is not so. I appreciate that many hon. Members feel that we could be discussing this at another time and in another place—[HON. MEMBERS: "Hear, hear"] I am glad that at least something that I have said has met with agreement. However, league football is excluded because it is already the beneficiary of the 2·5 per cent. reduction. That does not prevent amateur or non-league football being supported, and that is right.

Mr. Howell: That may be, but the Chief Secretary to the Treasury's comment about the beginning of the football season was odd because the proposal does not apply to professional football. The money comes from pools betting that operates for 12 months and not just for the football season.
I will get on with it as I do not want to play extra time. In welcoming the Chief Secretary's comments, one of the difficulties is that there have been no public statements


about how the trust is to be constructed. The issue should be debated publicly if four of the trustees are to be appointed by the pools companies and seven from the Pools Promoters Association. They seem to be the same people wearing different hats.
I hope that there will be further statements so that we can discuss the details. Having expressed my satisfaction with this short debate, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 10

BUILDING SOCIETIES: QUALIFYING SHARES

Amendment made: No. 26, in page 123, line 33, at end insert—
'(5) This paragraph shall not have effect in relation to the application of section 64 for the purposes of section 136A of the Capital Gains Tax Act 1979.'.—[Mr. Maude.]

Schedule 13

MANUFACTURED DIVIDENDS AND INTEREST

Amendments made: No. 34, in page 131, line 25, at end insert—
'recognised clearing house" means a recognised clearing house within the meaning of the Financial Services Act 1986;'.

No. 35, in page 131, line 27, leave out
'the Financial Services Act 1986' and insert 'that Act'.

No. 36, in page 131, line 30, after 'payment", insert
'subject to any regulations under sub-paragraph (2) below'.

No. 37, in page 131, line 34, leave out from beginning to end of line 45 and insert—
'(b) any manufactured dividend or manufactured interest not falling within paragraph (a) above which is paid in respect of United Kingdom securities or United Kingdom equities by a person other than one who is—
(i) a market maker in relation to United Kingdom securities or United Kingdom equities of the kind in question, or
(ii) in such circumstances as may be prescribed, a member, of a prescribed class or description, of a prescribed recognised investment exchange, or
(iii) in such circumstances as may be prescribed, a prescribed recognised clearing house,
and which is so paid otherwise than in connection with an approved stock lending arrangement;'.

No. 38, in page 140, line 51, leave out 'and' and insert—
'"recognised investment exchange" means a recognised investment exchange within the meaning of the Finacial Services Act 1986"; and'.

No. 39, in page 141, line 2, after 'manufacturer', insert '(a)'.

No. 33, in page 141, line 4, after 'Kingdom', insert 'or
(b) is a member, of a prescribed class or description, of a prescribed recognised investment exchange,'.

No. 40, in page 141, line 8, leave out from le to 'may' in line 9 and insert—
'(7B) Without prejudice to the generality of subsection (7A) above, dividend manufacturing regulations made by virtue of that subsection'.

No. 41, in page 141, line 16, leave out from 'paid' to 'for' in line 17 and insert—
'and, without prejudice to the generality of paragraph (c) above, any regulations made for the purpose specified in that paragraph may include provision, in a case falling within subsection (7A)(a) above,'.—[Mr. Maude.]

Schedule 15

RELIEF FOR COMPANY TRADING LOSSES

Amendment made: No. 27, in page 154, line 16, leave out '1st April' and insert '14th June'.—[Mr. Maude.]

Schedule 16

SETTLEMENTS: SETTLORS

Amendments made: No. 2, in page 158, line 11, at end insert
'but nothing in the preceding provisions of this sub-paragraph shall prevent deductions being made in respect of losses accruing in a year of assessment in which the conditions mentioned in paragraph 1(1)(a) to (d) and (f) above are fulfilled as regards the settlement.'.

No. 3, in page 159, line 7, leave out sub-paragraph (4).

No. 4, in page 159, line 32, at end insert—
'(8) In sub-paragraph (3) above "child" includes a stepchild.
(9) For the purposes of sub-paragraph (3) above the question whether a company is controlled by a person or persons shall be construed in accordance with section 416 of the Taxes Act 1988; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.
(10) For the purposes of sub-paragraph (3) above the question whether one company is associated with another shall be construed in accordance with section 416 of the Taxes Act 1988; but where in deciding that question for those purposes it falls to be decided whether a company is controlled by a person or persons, no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.
(11) In sub-paragraphs (9) and (10) above "participator" has the meaning given by section 417(1) of the Taxes Act 1988.'.

No. 5, in page 161, line 39, leave out '(a)'.

No. 6, in page 161, line 41, at end insert
'but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.'

No. 7, in page 161, leave out line 42 and insert—
'(9A) In this paragraph "participator" has the meaning given by section 417(1) of the Taxes Act 1988.'.

No. 8, in page 162, line 9, leave out
'by way of a bargain made'
and insert
'under a transaction entered into'.

No. 9, in page 162, line 11 at end insert
'but if the settlement's expenses relating to administration and taxation for a year of assessment exceed its income for the year, property or income provided towards meeting those expenses shall be ignored for the purposes of this condition if the value of the property or income so provided does not exceed the difference between the amount of those expenses and the amount of the settlement's income for the year.'.—[Mr. Maude.]

Mr. William Cash: I beg to move amendment No. 49, in page 162, line 12 at end insert
'and
(c) otherwise than in respect of the expenses of the trustees'.
The amendment complements Government amendment No. 9, but it takes it a little further. It comes from consultations between a number of tax practitioners, one of whom is operating as a consultant. The problem with the Government amendment is that it provides only a


partial solution to dealing with settlement expenses. In a nutshell, the capital-related expenses are paid out of income. The amendment will amount to an addition to the settlement by a life tenant, which will bring the trust within the new rules covered by the schedule.

Mr. Maude: We have accepted that there is a case for allowing the expenses properly chargeable for an existing trust to be met without bringing it within the new provisions. Government amendment No. 9, with which we have just dealt, covers the situation. I cannot accept amendment No. 49, essentially on the basis that it goes wider than is necessary or desirable for the purpose.

Mr. Cash: I beg to ask leave to withdraw the amendment.

Amendment by leave, withdrawn.

Amendments made: No. 10, in page 162, line 27, leave out
'at matters before that date) might be expected to enjoy'
and insert
'only at the terms of the settlement immediately before 19th March 1991) would be capable of enjoying'.
No. 11, in page 162, line 39, leave out sub-paragraph (8) and insert—
'(8) In sub-paragraph (7) above "child" includes a stepchild.
(9) For the purposes of sub-paragraph (7) above the question whether a company is controlled by a person or persons shall be construed in accordance with section 416 of the Taxes Act 1988; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.
(10) For the purposes of sub-paragraph (7) above the question whether one company is associated with another shall be construed in accordance with section 416 of the Taxes Act 1988; but where in deciding that question for those purposes it falls to be decided whether a company is controlled by a person or persons, no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.
(11) In sub-paragraphs (9) and (10) above "participator" has the meaning given by section 417(1) of the Taxes Act 1988.
No. 12, in page 163, line 4, leave out
'by way of a bargain made'
and insert
'under a transaction entered into'.
No. 13, in page 164, line 36, leave out
'any provision other than the paragraph concerned'
and insert
'the paragraph concerned or of any other provision'.
No. 14, in page 164, line 44, leave out
'any provision other than the paragraph concerned'
and insert
'the paragraph concerned or of any other provision'.—[Mr. Maude.]

Schedule 18

SETTLEMENTS: BENEFICIARIES (MISCELLANEOUS)

Amendment made: No. 15, in page 172, line 37, leave out
'by way of a bargain made'
and insert
'under a transaction entered into'.—[Mr. Maude.]

Bill to be read the Third time this day.

Fair Employment (Northern Ireland)

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Richard Needham): I beg to move,
That the draft Fair Employment (Amendment)(Northern Ireland) Order 1991, which was laid before this House on 4th July, be approved.
Fair employment is a most important issue in Northern Ireland. It is of concern to everyone and it affects relationships between and within both sides of the community. The order addresses one of its key aspects—the equitable, prompt and effective processing of individual complaints of alleged discrimination.
It may be helpful to the House if I outline briefly the background to the order and its consequential draft monitoring regulations, copies of which have been provided to assist hon. Members. When the Fair Employment (Northern Ireland) Act 1989 was passing through Parliament, the Government undertook to watch how the new legislation worked out in practice and to review its operation.
The Fair Employment Commission's monitoring report for 1990 is encouraging. For one thing, statutory monitoring has established facts—hard and concrete evidence—about the actual employment situation. In doing so, it has helped to dispel the myths, prejudices and misinformation that so often surround the topic. It has shed much-needed light on the reality of the overall situation. That is a most significant contribution to objective debate on the subject, as is the gathering of evidence that shows that there are disadvantages and under-representation in both communities.
Statutory monitoring has also revealed some very positive features, such as the almost equal representation of both communities in higher professional posts such as teachers, lawyers and doctors. It has revealed the small differential between Protestants and Catholics in the broad managerial and technical group of occupations. It suggests that Northern Ireland is moving far closer to fair employment in aggregate terms than has been generally believed.
Of course, we are not complacent. Catholic under-representation in such industrial sectors as engineering, banking, finance and insurance, and in the skilled manual, clerical and sales occupations, is not acceptable. The same applies to Protestant under-representation in certain management and professional occupations. But there is no doubt that the first statutory returns show a more positive, and certainly a far more complex and sophisticated, picture than the simplistic crude and misleading caricatures painted by the MacBride proponents. So, overall, there is encouraging evidence that the 1989 Act is already helping us to move in the right direction. Progress is being made and areas for further improvement are being identified and quantified so that they can be selected for future action.
However, the House will be aware that in October 1990, a decision of the fair employment tribunal disclosed a serious problem in relation to the operation of a single but important aspect of the Act. It relates to the handling of individual discrimination cases. The problem is that the protection afforded by section 30 of the 1989 Act to information used for monitoring purposes, or from which the community background of an employee or job


applicant could be deduced, is too wide. Individuals are unable to pursue cases and employers are unable to bring forward evidence to answer complaints.
When we canvassed possible solutions in a consultative paper in November 1990, views were divided. On the one hand, there were those who wanted total repeal of section 30 and on the other there were those who supported amendment to allow disclosure of monitoring information, but only in very carefully defined and limited circumstances.
Total repeal would be clear cut, but it would mean removing the specific offence of releasing information obtained during monitoring. There is considerable concern that such information should remain confidential except in very limited circumstances. At the same time, it is not easy to define all the circumstances in which such confidential information should be disclosed, while ensuring that the fair employment tribunal is not overburdened with cases about disclosure.
After careful consideration of the comments received on their consultative paper, the Government proposed a further approach. That approach set out a reasonable compromise between the requirements of disclosure and confidentiality.
The main elements of the Government's approach are repealing section 30 of the 1989 Act and adding to section 28 a new provision which will provide for the confidentiality of monitoring information through regulations. The regulations will preserve the confidentiality of monitoring information obtained under the three principal methods of monitoring. They will remove confidentiality from information obtained under the residuary method of monitoring. They will permit the disclosure of confidential information in limited circumstances, for example, to the Fair Employment Commission, the Labour Relations Agency, the Equal Opportunities Commission, the fair employment tribunal, the courts and industrial tribunals.
The comments received on the Government's draft order and regulations, and the debate on them in the Northern Ireland Committee, showed that all parties appreciated the need to ensure that individual cases—330 are currently pending—could proceed quickly. But it was clear that the basic division remained between those favouring total repeal of section 30 and those favouring limited disclosure.
As a result of that Northern Ireland Committee debate, the Government were persuaded of the need to amend our draft order in a number of ways. It now ensures that, neither the Fair Employment Commission nor the Equal Opportunities Commission are unnecessarily limited in their ability to seek information from monitoring returns—nor does the order preclude disclosure to consultants or trade union officials; it contains appropriate retrospective provisions to permit the processing of cases affected by the tribunal's ruling last October; and it corrects an omission from the 1989 Act about time limits for bringing a complaint where an act of discrimination has taken place over a period.
The order addresses two key objectives: first, the need for individual complainants to have ready access to the relevant information necessary to pursue their cases; and, secondly, the need for all who hold protected information to have a clear appreciation of what information is

protected by the legislation and what is not, and to have the necesssary statutory backing for the release of confidential information under the exceptions provided in the order and regulations.
I am very conscious of the particular sensitivities aroused in Northern Ireland by permitting the disclosure of information on perceived religious belief or community affiliation, or on the names and addresses of specific individuals. I recognise those sensitivities and know that they can be considerably heightened by the terrorist activities in both communities. But it is important to maintain a sense of proportion. The reality is that in the vast majority of cases the only information in which the commission or tribunal are likely to have an interest is that which discloses the community affiliation of an individual. It is most unlikely that, in most cases, more detailed information about, for example, address, occupation, or club membership will be requested. Even in the most unlikely event of its being requested—and this is the important point—the order does not require or compel the release of such information. So it is important not to overegg the sensitivity issue; and it is equally important to keep in mind that the order is permissive. It does not insist on the release of information whether sensitive or
Ultimately, it is for the fair employment tribunal to determine what information it is reasonable for an employer to provide or withhold, in response to a request from a complainant. The tribunal has absolute legal discretion in this matter and the Fair Employment Commission, without in any way compromising the tribunal's discretion, has said that it stands ready to provide employers with guidance on how they should respond to requests for information in individual cases. It is prepared to advise employers on the content, nature and timing of the release of information. So I suggest that all employers make use of it when they are concerned about how best to respond to a particular request.
Turning to points of detail, it may be useful to the House to focus on the primary reason for this amending order and to point out clearly what it does and does not do. At present the confidentiality provisions under section 30 of the 1989 Act are so wide that individual cases cannot proceed and employers cannot bring forward information to defend themselves. As a result, no information likely to disclose community affiliation can be divulged. Clearly, this is unacceptable to both complainants and employers. So the order effectively breaks this logjam on individual cases taken by members of both communities and it enables employers to know clearly what information is, and what is not, covered by confidentiality.
It is important to emphasise that the amending order does not require the divulging of confidential information about Royal Ulster Constabulary or Ulster Defence Regiment members, for example, or indeed any other individuals. It does not give complainants or the FEC the right to demand specific information and to have this supplied. Complainants and the Fair Employment Commission can, as at present, request information, but employers are still not obliged or required to provide it.
So at present, the release of requested information remains voluntary. Criminal sanctions also remain to protect confidentiality. The amendment focuses confidentiality on information supplied by one of the three principal methods of monitoring and on the determination by the employer of community affiliation.
It follows that if a complainant asks for any information including the name and address of an individual who happens to be a member of the RUC or UDR, the employer could still refuse to provide it; an employer is not obliged to provide any information in response to a question from a complainant or the Fair Employment Commission. So an employer could still, as at present, refuse to provide that information.
The Government are determined to enforce the best practice of fair employment in Northern Ireland on behalf of both communities. Too many firms in Northern Ireland are still either almost totally Protestant or almost totally Catholic—242 concerns employ more than 90 per cent. Protestants and 142 more than 90 per cent. Catholics. This shows the need for better integration of work forces in Northern Ireland. It shows the need to continue to provide equality of opportunity and fair employment for both Protestants and Catholics.
By working more closely together—by playing on the same team within the work force—people get to know, trust and respect each other better. Residual suspicions and outdated myths about people from different communities and cultural traditions are challenged and eroded. This is what the Government's fair employment legislation aims to do. I hope that we can all agree that the better integration of the work force throughout Northern Ireland is good for not only fair employment but the economic, social and political well-being of the region.
These objectives, particularly the fair employment and economic priorities, are linked. There must be substantial job creation and inward investment. Jobs for all requires jobs in the first place. That is what those who support the MacBride campaign tend to forget. The only political party in Northern Ireland that supports the MacBride campaign is Sinn Fein. And the House knows what the Sinn Fein policy on job creation amounts to in practice: the use of the bomb and the bullet to destroy jobs, threaten both the lives and the livelihoods of workers and to keep whole communities and families deprived of economic opportunity and hope.
I am sure that all those with a genuine interest in equality of opportunity in Northern Ireland will wish to renew their call for increased investment and job creation in the region as an important complement to fair employment. This order is a further stage in the encouraging progress that has been made since the passage of the 1989 Act. It will enable the equitable, effective and expeditious processing of individual cases by the fair employment tribunal. I commend the draft order to the House.

Mr. Kevin McNamara: The order seeks to correct an error which was made when the Fair Employment (Northern Ireland) Bill was passed. It is an error in the important area of monitoring. In the past year the final responses of employers to the monitoring procedures have been obtained. I take issue with the Minister on what the monitoring has shown. It is argued that, because the monitoring returns show that Catholics and Protestants are employed in relation to their numbers in the population, there is no discrimination. That is profoundly misleading.
The monitoring returns do not tell us the respective proportions of Catholics and Protestants within the work force. They tell us the number of employees only in firms of 25 or more staff. They give no indication of the state of employees who work for fewer than 16 hours each week. They produce only aggregate results for multi-site employers. Therefore, the statistics perhaps require more careful examination than that suggested by the Minister.
As long as large gaps remain in the statistics, there will be difficulty in ascertaining the true picture, especially as it applies to both communities, to people in part-time jobs and, above all, to female employees. Nevertheless, the final responses of employers to the monitoring requests have given us a basis on which we can work from year to year to build up a picture of what is happening in the work force.
The Opposition welcome the fact that the Government have decided to address the problem of the Fair Employment (Northern Ireland) Act 1989 that was identified in the case of Pryce v. University of Ulster. Although, as we are amending a Westminster statute, we consider that such matters should usually properly be dealt with by public Bill procedure, we recognise the need for urgency in this case. The decision of the fair employment tribunal in the Pryce case was the only legally correct one, so no useful purpose would be served by any further delay in resolving the difficulty. The urgency of action on this issue is clear since the Pryce verdict has paralysed the operation of the fair employment tribunals and the industrial tribunals. We hope that the adoption of the order will lead to a rapid clearance in the backlog of the cases before the tribunals. We hope that the Government will facilitate the tribunals with all the assistance that they may consider necessary to achieve that objective.
I should point out that the order does not follow the direct approach to the disclosure problem which the Opposition sought and which was originally requested by the Fair Employment Commission, the Equal Opportunities Commission and the Standing Advisory Commission on Human Rights. We all advocated the simple repeal of section 30 of the 1989 Act. The Government decided, for reasons that the Minister gave us, that they could not follow that particular road. We can hope, therefore, only that the order does not lead to further as yet unforeseen problems in the implementation of the legislation. Nevertheless, it would be ungracious not to commend the Government on their positive response to many of the suggestions and arguments advocated by the Opposition during Committee when we discussed the principles of the Bill. Many of them were part of the proposals of the various organisations to which I have already referred—SACHR, the Fair Employment Commission and the Equal Opportunities Commission.
In particular, we welcome the Government's decision to allow full disclosure of the information to the tribunals. Similarly, the fact that the order will be retrospective is of great importance in ensuring access to justice. The definition of "recurrent discriminatory practices" at the last rather than the first instance of discrimination is also to be commended. We also recognise the Government's good sense in allowing for a disclosure to equal opportunities consultants, trade unions and other negotiators. Although we accept that the confidentiality of monitoring information on individuals must be protected, we do not believe—the Government also seem to accept


this—that such protection should be so inflexible as to subvert the purpose of the Fair Employment Acts. We welcome the fact that the Government have accepted that.
The importance of the fair employment issue cannot be overestimated. I regret that its degree of importance has certainly not been reflected in the scheduling of this order for consideration by the House tonight in what might be called less than peak viewing period. The search for equality and justice is vital in the struggle to make Northern Ireland like any other part of these islands, and of Europe. The Opposition hope that we can put this unfortunate episode behind us and that the Pryce case is now history. We must get on with the task of establishing genuine equality of opportunity for all sections of the community. We hope that the order will now permit the effective implementation of fair employment legislation. In that hope, should the order be challenged, the Opposition will support it in the Lobby.

Rev. Ian Paisley: On behalf of the people of Northern Ireland, I should like to make the strongest possible protest in the House at the way in which the legislation has been introduced. First, we had a charade in Committee when neither the Whips nor the Opposition evidently understood that if the matter was referred to the House a gag would be put on all further debate in the Committee. Therefore, it was only possible for two Members representing Northern Ireland to make contributions in Committee.
We are now considering the matter at this ridiculous hour of the morning. The legislation is important: it covers new ground, it is not applicable to any other part of the United Kingdom, and it is retrospective. Information gathered under the Fair Employment (Northern Ireland) Act 1989 which was considered confidential is now to be taken out of the arena of confidentiality and made public in certain circumstances. We are called at this late hour to debate the matter. If this is the way in which Ministers responsible for Northern Ireland think that they should proceed with such issues, it is nothing less than a disgrace.
The 1989 Act and the order flow from the Anglo-Irish Agreement and statements made in Dublin. The Government in Dublin have made strong representations to the Secretary of State for Northern Ireland that legislation should be introduced immediately to rectify the so called grave and terrible discrimination against Roman Catholic work people in Northern Ireland. Those accusations are not true. It would do hon. Members good to study the people who are making such accusations.
I read with great interest a recent article by Noel Browne, a veteran figure of left-wing politics in the Republic, who was Minister for Health between 1948 and 1951. He wrote of the Irish Republic:
It is a carefully-cocooned, well-preserved fly in amber, a unique relic of pre-Reformation, mediaeval Europe. In both eastern and western Europe, the republic is the last remaining vestige of Philip II's infamous Roman Catholic Empire, 'on which the sun would never set' … Lest the corrupting influence of free-thinking Lutheran Protestants should corrupt the Catholic Irish, separate development was established to keep Catholics distinct. As well, Protestants were denied the right to earn a living in the republic, and were driven out. Three out of four Protestants fled what is now the Republic in the last hundred years.
We can see the attitude to the employment of Protestants in the Irish Republic. That attitude was

described not by a Unionist or someone who is known for right-wing politics, but by a veteran socialist who was driven out of politics in the south of Ireland by the pressures of the Roman Catholic hierarchy. Yet those in the south of Ireland make accusations about discrimination and call for legislation against it in the north of Ireland.
Recently I wrote to the British ambassador in Dublin to inquire how many Protestants are employed in the civil service in the Irish Republic and in the Gardai. Her Majesty's ambassador to the Irish Republic, Sir Nicholas Fenn KCMG, replied:
We have spoken to the Central Statistical Office; the office of Census and Population Studies; the Civil Service Commission; the Employment Equality Agency; and the Department of Finance, but have drawn a blank on your constituent's enquiry. The information is simply not available here".
The people who call for legislation on fair employment to apply in Northern Ireland do not do anything about the matter in their own country.
I believe in fair employment, but I do not believe that people should be employed because of their religious affiliation. People should be employed because of their qualifications to do the job. When this legislation was first brought before the House we were told that there would be no such thing as quotas. We were told that everything would be confidential and that it was just a monitoring system. Increasingly, a regimentation of religious affiliation is being carried out. The strange thing is that, if the Government decide that someone is a Roman Catholic or a Protestant, that affiliation can never be changed.
I have raised with the Minister the issue of a constituent of mine who, because she happened to have attended a maintained school, was registered for ever as a Roman Catholic. A letter from the Northern Ireland Health and Social Services Board says that that does not really matter and that my constituent should not be concerned about it. I do not see why wrong or misleading facts should be put into the monitoring system without providing a way to change them. The Government should seek to be truthful in their information.
In the past, I was told that all the information would eventually be destroyed, but we are now told that it will be kept and can be asked for by the courts. May I put forward my party's opposition in principle to the disclosure of anyone's religious affiliation to any third party, and to the entire monitoring procedure set up by the fair employment legislation. People should not be required by law to state their religion, nor should employers be required by law to inquire into their employees' affiliation.
The Fair Employment Commission seems eager to highlight what it calls discrimination against Roman Catholics, but it is less eager even to investigate what happens with regard to companies that employ more Roman Catholics than they should. I have in my possession an interesting document that has been much quoted in the press. Some time ago, the British Broadcasting Corporation decided to put on what was to be the show of all shows and spent almost £1 million on it. Naturally, it was a complete and awful flop, the money was poured down the drain and many people were consequently put out of work.
The document, which is a complete record of all that happened in that show, was found on a rubbish heap in Belfast. The floppy disk reference number on the document is REGFM12.011. I purposely quote that


reference to the House because Mr. Cooper cannot find a way to investigate the matter. He now has the number of the floppy disk, so he has the power to ask the BBC for the records. He did not do so because the record shows that the ratio of employment in that show was seven Roman Catholics to one Protestant at the best, or worst, whichever way one looks at it, and five Roman Catholics to one Protestant at the worst, or the best. But Mr. Cooper is not prepared to do the job that he is supposed to do. Unless the Fair Employment Commission is fair, no one will have any faith in what it carries out.
The Fair Employment Commission published an investigation into the Post Office a short time ago. As I have already made clear, I do not hold any brief for the FEC, but its figures show that Protestants were under-represented in Belfast, Ards, Londonderry, Magherafelt and Strabane. If Roman Catholics had been under-represented, what a furore there would have been and what accusations would have been made. But the FEC seems to be endeavouring to stage a cover-up.
So serious was the under-representation of Protestants in the north-west that the Post Office must treble the number of Protestants on the payroll to give them the same percentage as exists in the local community. But instead of recruiting Protestants, the Post Office has been recruiting even higher percentages of Roman Catholics in recent days. The FEC examined Ulsterbus and City Bus that employ almost 2,900 people, and again found that the Protestant community was under-represented. The more recent the recruitment, the higher the percentage of Roman Catholics employed.
Those are the FEC's own figures. We heard about managerial posts not being given to Roman Catholics. Sometimes attempts are made to establish that, when Roman Catholics get jobs, they get less skilled posts, while Protestants tend to be given the managerial and salaried positions. But Anthony Murphy and Graham Gudgin of the Northern Ireland Economic Research Centre recently commented on the fact that the FEC's annual report showed that Catholics are ahead of Protestants in the managerial, technical and professional occupations. The House should make itself aware of those facts.
The FEC report on the University of Ulster dealt another heavy blow to the myth. It found that the higher the salary scale, the greater the percentage of Roman Catholics employed. The same report also showed that the difference between Catholic percentages in established posts as opposed to new positions was startling.
Many leading researchers in Northern Ireland are now being faced with demands from Protestants about the treatment of their community. When a company in Northern Ireland expands its business and takes on hundreds of additional staff, it is usual practice for a Minister to make a statement and tell the good news—I agree with that because employment in Northern Ireland is good news. United Technologies of Londonderry had an increase of 300 jobs. How many of them went to Protestants? As far as we can ascertain, not one. Those are the facts, and the House should be aware of them.
Dublin makes many accusations about the way that Protestants treat Roman Catholics in the north. But it is not a one-way street and Northern Ireland Ministers should be as enthusiastic about fighting for jobs for

Protestants as they are about fighting for jobs for Roman Catholics. There is in the Fair Employment Commission a tendency—more than a tendency, a bias—not to let the full facts be known.
Today Mr. Cooper was sought by the press because this wonderful document which was discovered on a rubbish tip was to be mentioned in the House. Mr. Cooper was conveniently unavailable, but when a report states that Roman Catholics are not getting a fair crack of the whip in some places of employment he is on the radio and television and making statements galore running down Protestant employers.
I noted what the Minister said about Protestants and Roman Catholics. He should crusade equally for both and should see to it that Protestants get as fair a crack of the whip as Roman Catholics. According to the Fair Employment Commission, there is a great variation. Something is wrong and steps must be taken to ensure fair play. The answer to problems about fair employment is to have plenty of employment. But when there is not plenty of employment the House must be even-handed, because if it is not there will be no confidence in legislation on this matter.
I am seriously alarmed about confidentiality being breached, although some hon. Members may say that that does not really matter. In the Committee examining the order I and the hon. Member for Kingston upon Hull, North (Mr. McNamara), who led for the Opposition, were amused by some of the goings on. The right hon. Member for Strangford (Mr. Taylor) said:
Two points arise. First, does the Opposition Front-Bench spokesman—he is a Roman Catholic—[Interruption]—…"
it seemed that that was a terrible thing to say—
recognise the conclusion of the Fair Employment Commission that it has many more more Roman Catholics on its staff than is reflected in the general population of Northern Ireland,".
I raised a point of order and said:
It is strange that we are discussing an order that makes it the responsibility of everyone who is employed to state where he stands as between Protestantism and Romanism only. Yet when a right hon. Member referred to a member of the Committee as a Roman Catholic there were protests.
The Committee was deciding that everybody must be religiously labelled, but when a member of the Committee was referred to as a Roman Catholic there was an interruption and anger.
The hon. Member for Kingston upon Hull, North made clear what he was and said that he did not get his job because he was a Roman Catholic. He was not in the quota system. He said:
I am a Labour Member of Parliament who happens to be a Roman Catholic. I was elected on a Labour ticket and no other. If I were to stand on any other ticket, I would be soundly beaten by a Labour candidate and deservedly so."—[Official Report, Northern Ireland Committee, 16 May 1991; c. 15–16.]
The hon. Gentleman would not get a job in Northern Ireland under the order. That shows the hypocrisy in this matter, and how the Ulster people look on that hypocrisy.
Confidentiality is important. What we need to fight in Northern Ireland is fear. People are afraid. Only today, we had another report that information from the Army, with photographs, had got into the wrong hands. People are worried about safety. I want to know how there will be confidentiality if we go on releasing these monitoring procedures, and what they bring out in all places where


they can under the order. Who will have the information? Will there be a religious roll call of everybody in Northern Ireland?
Many in Northern Ireland feel that the House has not had enough time adequately to consider the order. I must finish my speech soon because other hon. Members wish to speak, and we have only an hour and a half for the debate. Usually, on a debate such as this, we would have three hours, but when the Government decided to put the order before the House at this late hour Ministers did not want to be having their breakfast before they went to work. They want to have their cornflakes at home, not here. Some of us cannot get home, so we would be happy to talk all night on this theme. We are not chained or tied to anything. I see the Minister of State the hon. Member for Peterborough (Dr. Mawhinney) sadly nodding his head. All that I can say is that, if the Government put such measures before the House at this hour, he cannot expect us to do anything other than use the full hour and a half for the debate.
All the information gathered last year in the monitoring exercise was gathered under the provisions of section 30. People co-operated under the law as it then was. They were told that the information would be confidential. Tonight, we are being asked to breach the very foundation on which this information was given. The Order in Council will enable employers to disclose information that was given to them on the basis of confidentiality. Thus, the Order in Council is retrospective, as the Minister made clear. That is a serious bar to our acceptance of the order. If section 30 is to be done away with, in the sense that it is to be altered by the order, then no information should be released until a new monitoring exercise has been carried out, and every employee is told that the information will not be kept confidential because in certain circumstances it will be made public, and his religion will be made public to a third person.
These people should now be told the new circumstances under which the information about them can be released, and to whom. There should be an amendment so that if an employer proposes to disclose information about an employee, that employee has the right to be notified that that information will be disclosed. It is not right that the employer can disclose information, gathered on the basis of confidentiality, without telling the person concerned that that information will be released. What have the Government to say about those two matters?
This monitoring is not done in England or Scotland or in Wales. We are on new ground, and we should be doing something tonight that will regiment the work force of Northern Ireland. As the hon. Member for Kingston upon Hull, North said, later it will go down to smaller firms as well.
There has been no difficulty on the work floors of Northern Ireland during all the troubles. That is a big thing to say, but it is a fact. There are some who would lead others to believe that people are at loggerheads on the work floors, but the troubles in our country have been kept away from areas of work almost entirely. That is to be commended. I have been worried for a long time, however, that, when objections are made by the Fair Employment Commission about the flying of the Union Jack or the putting up of poppies on Remembrance day, disaster will be brought into places of employment. These are matters to which the Government must pay heed. We need to keep the troubles away from the workplace in Northern Ireland.
When we pass the order tonight, we should realise how serious are the matters that it raises. I trust that Mr. Cooper will be sacked and that we shall get someone in Northern Ireland who people can trust and in whom they have confidence. It matters not whether that person is Roman Catholic or Protestant. It does not matter what his religion is as long as people can put their faith and trust in him. Whether the Government like it or not, the people have lost all trust in Mr. Cooper.
Why was it that the report on industries and shops in Londonderry was not brought forward quickly? Why did Mr. Cooper drag his feet? When the report was completed, why did he put it under wraps? He did so because it was an indictment of the way that Protestants were being treated in Londonderry. Let us have fair play. If we have fair play all round, people will have some confidence in what is happening.
Information was gathered in confidence and people were told that it would never be used. Now we are asked to accept that there should be a breach of confidentiality and that confidential information can be used without telling the person who co-operated fully, thinking that the information would remain confidential. That is an indictment of the order.

Mr. David Trimble: We are considering a significant piece of legislation and, as other hon. Members have said, it is disgraceful that it is being debated at nearly 3 am under a procedure that prevents proper detailed discussion of the measure. I know that we discussed the matter during one sitting of the Northern Ireland Committee. Members who attended that sitting will know that we never got down to the details of the legislation, even in that context. There was not a proper debate on the details, and there has not been one tonight.
The use of the Order in Council procedure for this legislation is especially inappropriate. It introduces—not for the first time—confusion between the two statute books. The Order in Council made on the Northern Ireland Acts is a form not of secondary legislation but of primary legislation. The question that arises—it is a point that I put to the Minister during a meeting that was held to discuss the matter—is which statute book the order will go into.
The order amends the Fair Employment (Northern Ireland) Act 1989 which is contained in the United Kingdom statute book which is appropriate. Where will the Fair Employment (Amendment)(Northern Ireland) Order go? It amends the 1989 Act, so in which statute book will it appear? We have a Northern Ireland statute book—so-called—but it contains only Orders in Council and is, generally speaking, confined to transferred matters and is said to be intended to maintain continuity. However, there is no question of continuity with regard to the Fair Employment (Amendment)(Northern Ireland) Order because the Act that it amends is not in the Northern Ireland statute book, but in that of the United Kingdom. Logically, the Order in Council should appear in the United Kingdom statute book. It will be interesting to see how that is made up at the end of the year.
This is not merely a technical point or a matter of curiosity; it is a question of which interpretation Act is to be applied. Being drafted as an Order in Council, it looks as though the draftsman has followed the usual form for


Northern Ireland Orders in Council and has applied to it the Interpretation Act (Northern Ireland) 1954. Of course, the interpretation Act that applies to the United Kingdom statutes is the United Kingdom Interpretation Act 1978, and the two Acts are not the same. It is ludicrous that the order inserts new sections into the 1989 Act, but should the question of interpretation arise when reading the greater part of that Act one applies the United Kingdom interpretation Act. However, in some sections and subsections one will have to switch from the United Kingdom Interpretation Act to the Interpretation Act (Northern Ireland) if the person interpreting the Act appreciates that there is a difference.
Anomalies are created not just in respect of the Interpretation Act. Orders made under the Northern Ireland Act 1974 are subject to vires limitations by reference to the provisions of the Northern Ireland Constitution Act 1973, which apply to this Order in Council and to the regulations made under it, which will then be inserted into a United Kingdom Act to which there are no vires limitations. It is a constitutional monstrosity, and I am amazed that it is being carried out by Order in Council, which states that it must be done for reason of urgency. If it were a matter of urgency, there has been plenty of time to vote the matter through as a Bill and to have debated it if the Government considered it urgent enough and were prepared to make time available. This is July and the matter arose in November. There has been consultation and discussion, and there has been more than enough time to push the issue through in the normal way, That should have been done, but it has not been done.
The use of the Order in Council procedure reveals another matter of interest. It exposes the fraudulence of the argument used to deny us proper legislation. When we complain about the Order in Council procedure we are told that it must be maintained to maintain the integrity of the statute book. There is no integrity in the statute book in this case. That shows that the integrity of the statute book is not the reason why the procedure is maintained.
The use of the Order in Council procedure is also bad in this case because it reinforces the fact that the legislation is confined to Northern Ireland because Orders in Council can legislate only for Northern Ireland. If legislation of this nature is considered appropriate, it should apply on a United Kingdom-wide basis. It is said that there is disadvantage in employment in Northern Ireland on what might be called ethnic grounds. There is also disadvantage in the United Kingdom on ethnic grounds. If it is wrong to discriminate against a person on the grounds of his national or ethnic origin, it should be wrong throughout the kingdom. If legislation of this nature is considered necessary in Northern Ireland, it should also apply in England and Wales where there is significant disadvantage for ethnic minorities—but not only for them.
A few months ago, an interesting survey revealed that Roman Catholic university graduates from Northern Ireland who sought employment in England and Wales fared less well than Protestant graduates from Northern Ireland who did the same. That fascinating survey showed that Roman Catholic graduates seeking employment in England did worse than those remaining in Northern Ireland, which implies that there is greater discrimination

against Northern Ireland Catholics in England than in Northern Ireland—though any one set of figures must be treated with some reservation.
If sufficient time had been available to me, I would have examined the origins of the 1989 legislation, which can be found in the problem that was said to have arisen in the case of Pryce v. University of Ulster. I am not convinced that the problem did stem from that case. If that case had been properly pursued at the time, the alleged difficulty in the 1989 Act would have disappeared. However, it would take more time to make that argument than is at my disposal this evening.
If the Pryce case did reveal a problem in respect of section 30, it could have been resolved by a short and simple amendment. It was held that section 30 confined disclosure for the purposes of the 1989 Act, whereas the Pryce case was brought under the provisions of the 1976 Act. If that was true, all that was needed was an amendment to section 30, substituting for the words "this Act" a phrase such as "the Fair Employment (Northern Ireland) Acts".
When the Minister was consulted last November, it was said that the problem related to the tribunal case. We pointed out that that could be cured by a minor change, and that the more radical changes to the law on confidentiality that would be made by the order would then be unnecessary. The disparity between the limited nature of the problem and the extent of the proposed changes made us suspect that the Government and the Fair Employment Commission had a hidden agenda.
Replying to those points in his letter of 21 February, the Minister said:
I should say too that the decision to seek an amendment of the 1989 Act was not made simply on the basis of the ruling of the tribunal president, but on the clear view that the case brought to light a quite complicated problem, which required speedy resolution.
Unfortunately, the Minister did not state what the problem was. However, in our consultations with him a few weeks ago, he said that it was feared that the offence of disclosure created by section 30 was so wide that if a person who was aware of an item of information about an individual—such as the school that he attended—happened to disclose it, even though the information had not been gained in connection with classification under the legislation, that person would be committing an offence.
The solution to that problem would be a provision on the lines of the new subsection (7) that will be added to section 19 of the 1989 Act by article 4 of the order. However, the disparity between the alleged problems and the extent of the proposed alterations makes us wonder why the order considerably widens the disclosure provisions in the way that it does. No explanation was offered by the Minister on past occasions or more recently.
Article 4 also imports a new subsection (1)(a) into section 19 of the 1989 Act, which provides for disclosure necessary or expedient for the proper discharge of the functions of the Commission".
Subsection 1(b) refers to such a disclosure that
is made for the purpose of, or in connection with—
(i) any actual or prospective proceedings before the Tribunal, or an industrial tribunal; or
(ii) any actual or prospective civil or criminal proceedings before a court."
I contrast the wording of the new subsection (1)(a), which refers to a disclosure that is
necessary or expedient for the proper discharge of the functions of the Commission"—


which is not present in subsection (1)(b)—with the existing section 19(1)(b) of the 1989 Act, which refers to a disclosure that is
necessary—

(i) for the purposes of any proceedings".
Originally, disclosure was to be limited to where it was "necessary"; now, the word "necessary" has been omitted.
The changes in the legislation permit disclosure not just to the Fair Employment Commission—we might feel some sympathy with that—but to the Labour Relations Agency and the Equal Opportunities Commission, and for the purpose of any other proceedings. To demonstrate that my comments are not politically motivated, let me quote the Belfast Solicitors Association, which said:
If there is reason in that these bodies may be legitimately involved in the investigation of a Fair Employment complaint, then disclosure to that extent should be permitted, but specifically limited to their involvement in such investigations. If there is reason why such bodies should have more general access to such information, then that should be debated and provided for in their own enabling legislation.
No one could disagree with that. This is fair employment legislation, and the disclosure provisions in it should be for the purposes of such legislation. Instead, much wider provision has been made for disclosure, and—as the Minister said in the letter that accompanied the most recent alterations—it is permitted wherever it is required for the purposes of any legislation. That, surely, is taking things too far.
There is also provision for disclosure in connection with any civil or criminal proceedings. At the meeting to which I referred, we asked the Minister if he could provide any example in which disclosure would be necessary in connection with fair employment proceedings. He was unable to do so, and I shall be interested to see whether he can do so on this occasion.
People are sensitive about the disclosure of such information. Many do not like the classification that results from the legislation; many are concerned for safety reasons, as identification of a person's religion is significant. For that reason, the protection of confidentiality is important. The hon. Member for Antrim, North (Rev. Ian Paisley) raised the issue when the original Bill was debated, asking what provision would be made in that regard. The then Secretary of State replied:
Although the hon. Member for Antrim, North … dressed it up in rather more lurid colours, he made an important point about confidentiality. He will know that confidentiality of information has been a clear concern of the Government in the preparation of this legislation. He knows that clause 19 is directed specifically to that important point. Clause 19 makes it an offence to disclose information from which a person's religious beliefs could be deduced."— [Official Report, 26 July 1989; Vol. 157, c. 1104.]
That important point has been substantially eroded in the new legislation. Not only has the provision for disclosure been widened, but protection has been transferred from the legislation to regulations.
The Belfast Solicitors Association commented on that, too. It said:
As the provisions regarding confidentiality, even though wrongly drafted, were originally, and rightly, considered to be of sufficient importance to be contained in the 1989 Act, it is wrong that the amending provisions should not also be contained in the primary legislation. They should not be delegated to the subordinate legislation of the Department of Economic Development.
This is not just a technical point. It is actually undesirable that the provisions regarding confidentiality should be contained only in the Department's regulations, because these are not subject to any mandatory voting or other scrutiny

procedure at Westminster other than the negative resolution procedure—the requirement of laying before Parliament under paragraph 3(3) of Schedule 1 to the Northern Ireland Act 1974.
This means that the Regulations are not subject to scrutiny at Westminster by the Houses Joint Committee on Statutory Instruments. Nor is there any procedure of scrutiny in Northern Ireland. Because these Regulations are subject to the negative resolution procedure at Westminster they would not come before the Examiner of Statutory Rules. (In any case apparently his post became vacant some years ago, and has not subsequently been refilled.)
Accordingly, if the amendments are to be contained in the Monitoring Regulations there will be insufficient scrutiny or protection.
Where there are sensitivities about disclosure, to remove protection is not a good idea. It should have been achieved in primary legislation that should have been enacted properly.
It is ironic that the apartheid regime in South Africa has been applauded for removing legislation that requires people to be monitored and their ethnic origin to be registered at a time when we are reinforcing this procedure in Northern Ireland. Many people find it objectionable, even though it must be conceded that that monitoring occasionally produces information that is of assistance in rebutting some of the wilder allegations.
None the less, the monitoring is objectionable in principle because it obscures the merit principle that should underlie the legislation and employment. It leads to a form of excessive head counting that is unhealthy for employment. It leads also to a surreptitious introduction of quotas by the back door which is the vice of the Fair Employment Commission, something which the commission's chairman understands and about which he is encouraging people to act illegally although he does not have the courage to admit that openly.
The monitoring also leads people to the fallacy of believing that we should be dealing with equality of outcome. In terms of the legislation, it would be perfectly proper for us to be dealing with equality of opportunity. It is important that there should be equality of opportunity, but only a fool would think that there must therefore be equality of outcome in every branch of industry and grade of employment. A series of factors will interpose between equality of opportunity and the outcome. Some of the factors are social, but it would be foolish to search for a perfect equality of outcome in every respect of employment, and that is what monitoring leads to.

Mr. Needham: The hon. Member for Kingston upon Hull, North (Mr. McNamara) said that monitoring until now dealt only with a certain proportion of the work force and did not involve companies employing fewer than 25 people. He was quite right. However, it covers two thirds of the total work force. I have no reason to believe that as it spreads out to companies employing fewer than 25 employees it will show any difference.
The figures show that the numbers in employment match closely the proportions in the communities although not as perfectly as one might wish, but very much in line with the proportions in the population as a whole. That is very important. The hon. Member for Upper Bann (Mr. Trimble) referred to the advantages of monitoring.
The hon. Member for Antrim, North (Rev. Ian Paisley) made a point about the lateness of the hour for the debate and I agree with him about that. However, that is not


necessarily a matter for me. Other hon. Members have kept the House talking tonight. We had a full debate on Northern Ireland business last week although some of that was rather detailed and perhaps this debate would have been better earlier in the day and perhaps a week earlier as well.
I do not agree with the hon. Member for Antrim, North about the Anglo-Irish Agreement having any involvement in this. I am determined to administer the economy of Northern Ireland so that we have fair employment for Protestants and Catholics alike. The hon. Gentleman made great play about that and he was right to do so; it should be fair on both sides.
At the moment 68 per cent. of Protestant males are in employment and 32 per cent. of Catholic males are employed. There is an imbalance. In a certain area 142 companies employ 90 per cent. Catholics. However, there are about 240 who employ 90 per cent. Protestants. I do not want to make too much of an issue of that except to say that matters have to be balanced equally, which is what the legislation is about. I think that the hon. Gentleman accepts that.

Mr. Peter Robinson: Should we take the Minister's denial of the comments of my hon. Friend the Member for Antrim, North (Rev. Ian Paisley), who suggested that the fair employment legislation was a child of the Anglo-Irish Agreement, as a rebuke for Mr. Gerry Collins, who claimed that it was?

Mr. Needham: Mr. Collins can take it any way he likes. The fact is that fair employment legislation was introduced in the House in 1976, long before the Anglo-Irish Agreement was in anybody's eye. The hon. Member for Antrim, North cannot have it both ways. He cannot say that he dislikes monitoring and fair employment legislation in principle and then attack—and I do not deny that he does so with some justification—the imbalance that exists in certain areas or companies in Northern Ireland. He is right to point out where imbalances exist. The very fact that the places that he quoted, such as the Post Office and the BBC, come out of the monitoring process shows that the Act is having effect. I agree that it is vital that the Fair Employment Commission is seen to be even-handed and balanced in the way in which it carries out its investigations. I am sure that Mr. Cooper will look carefully at the blue document that the hon. Member for Antrim, North found on the rubbish tip.

Rev. Ian Paisley: Is the Minister prepared to say in the House that he would direct Mr. Cooper, as I understand he has the power to do, to look at the document? As he already has the floppy disk number, he can get the information from the BBC.

Mr. Needham: I do not like directing people. As I have said, I am sure that Mr. Cooper will look closely into the points that the hon. Gentleman makes. Mr. Cooper can also read Hansard and see the points that have been made about him. He is as aware as anybody of the need to ensure that the Fair Employment Commission has a reputation in Northern Ireland for balance and even-handedness.
The hon. Member for Upper Bann raised a series of technical points on the legislation, and it was fair enough for him to do so. The Government do not accept that the

fact that this legislation is an order and that the act is on a different statutory basis is any reason why lawyers looking at the two parts of the legislation will not be able to work in harmony. I listened to what the hon. Gentleman said. We have no evidence to suggest that the order and the Act should not work in harmony.
I understand the hon. Gentleman's point about the reason why we introduced the order. As he rightly says, the reason was that we wanted to make good the omissions from the 1989 Act as soon as we could because we did not wish a back-log of cases to grow and so undermine the basis of the fair employment legislation and how it is seen in the United States and in many parts of Europe—as a way forward which all of us in the House accept gives the image of Northern Ireland a boost for inward investment and economic potential.

Mr. Trimble: The Minister said that he saw no difficulty in the order and the Act being together in harmony. Does that mean that they will be in harmony on the same statute book?

Mr. Needham: The answer is that they cannot be in harmony on the same statute book because, as the hon. Gentleman has rightly pointed out, they come under transferred matters and other matters.

Mr. Trimble: rose—

Mr. Needham: I will not give way to the hon. Gentleman again. There is no reason, other than the technical points that he made, to believe that the legislation should not continue to work effectively. I am not clear whether the hon. Gentleman is trying to undermine the legislation through a series of technical quibbles on the basis that he disagrees with it in principle. He has admitted that he feels that monitoring has benefits, but he then said that head-counting is unhealthy. He should tell that to the hon. Member for Antrim, North who spent most of his speech talking about head-counting and nothing else.
The hon. Member for Upper Bann then said that merit and equality of opportunity should be the criteria. I agree entirely. The whole basis of the legislation is to ensure that merit can be seen to be the basis on which jobs are gained in Northern Ireland and that equality of opportunity is what we are about. The hon. Gentleman then talked about the fact that equality of opportunity does not exist in certain companies and that there is no balance. He was perfectly right to address that point—it must be addressed. Nevertheless, the legislation shows that after a long history in both communities, where it cannot be argued that there has not been discrimination and unfair employment, the Government are determined to attack and remedy the problem. In so doing, they will set an example to others.

Mr. Trimble: rose—

Mr. Needham: I conclude by saying that I read Dr. Browne with some interest on these matters.

Rev. Ian Paisley: Surely the Minister must understand that certain employment sectors in Northern Ireland have always been wholly in the hands of either the Protestants or the Roman Catholics. Tiling and slating, for example, have always been in the hands of the Roman Catholics. Is he saying that he should break into that and into sectors that have always been either predominantly Protestant or Roman Catholic? Surely history must have some influence,


as should the areas where people live. We cannot ask Protestants to go into a Roman Catholic area to work. Surely the Minister must keep those things in mind.

Mr. Needham: I absolutely agree with the hon. Gentleman. There should be no quotas and no compulsion, but we must ensure under the legislation—

Mr. Trimble: rose—

Mr. Needham: I have not finished answering the hon. Gentleman yet.
We must ensure that what is done is done on the basis of fairness and balance and that the policies that employers follow are not discriminatory. The hon. Member for Antrim, North made a fair point when he talked about Londonderry and about United Technologies. He has shot his own fox because that is a good example of a company that is located in a specific place and where it would be extremely difficult—I am not saying impossible; we all want to work towards this—to get a balance in a certain travel-to-work area. We all know what the difficulties are, but that does not mean that we do not do whatever we can to try to ensure that the policies that companies and employers adopt are seen clearly to be within the framework of fair employment legislation so that everyone in Northern Ireland knows that they have a reasonable opportunity when they try to get a job.

Mr. Trimble: I thank the Minister for eventually giving way—I had been seeking to raise a point with him before the hon. Member for Antrim, North (Rev. Ian Paisley) intervened.
The Minister affected to be confused about the argument that I was making towards the end of my speech. I am sorry if it was a little rushed, but I was speaking quickly to try to assist the House. The point that I was making, which I repeat, is that the monitoring process, and especially the way in which it is applied by the Fair Employment Commission, undermines the merit principle, which is good and should be vindicated. The way that monitoring operates is undermining that principle by surreptitiously introducing quotas. The targets and all the rest are effectively quotas, whereas the merit system should apply.
The Minister said that I was raising technicalities. I am not, but I am waiting to find out why the disclosure provisions could not be confined to the purposes of the Act.

Mr. Needham: I shall not weary the House at this late hour with examples under fair employment legislation where religious or community affiliation would be necessary for a civil or criminal action. I am happy to write to the hon. Gentleman. I assure him that there are cases. I will give examples to him.
On the hon. Gentleman's first point on monitoring, I do not accept that it is a surreptitious way of introducing quotas. Nor do I accept that monitoring which shows the religious composition of the work force undermines the merit principle. I believe that when the work force in a travel-to-work area shows a balance between the two communities, whatever the composition of the population

in that area, that is much more likely to show that the merit principle is operating than a total imbalance one way or the other. That is unless the hon. Gentleman argues that there is a particular degree of intelligence in one community in one area or in another community in another area. We know that that is not the case.
We are trying to show that companies and employers are using the best possible recruitment and personnel practices to ensure that they recruit for jobs in a balanced way. I believe that that is what everyone in Northern Ireland wants. People do not want to see discrimination any more than the hon. Member for Antrim, North does. I commend the order to the House.

Question put and agreed to.

Resolved,
That the draft Fair Employment (Amendment)(Northern Ireland) Order 1991, which was laid before this House on 4th July, be approved.

Statutory Instruments, &c.

Madam Deputy Speaker (Miss Betty Boothroyd): By the leave of the House, I will put together the Questions on motions Nos. 4, 5, 6 and 7 on the Order Paper.

Motion made, and Question put forthwith pursuant to Standing Order No. 101(5)(Standing Committees on Statutory Instruments, &amp;c.),

HOUSING

That the draft North Hull Housing Action Trust (Area and Constitution) Order 1991, which was laid before this House on 10th June, be approved.

COMPANIES

That the draft Companies (Disclosure of Interests in Shares)(Orders imposing restrictions on shares) Regulations 1991, which were laid before this House on 19th June, be approved.

NORTHERN IRELAND

That the draft Access to Personal Files and Medical Reports (Northern Ireland) Order 1991, which was laid before this House on 6th June, be approved.

ROAD TRAFFIC

That the draft Motor Vehicles (International Circulation)(Amendment)(No. 2) Order 1991, which was laid before this House on 20th June, be approved—[Mr. Greg Knight.]

Question agreed to.

European Community Documents

Motion made, and Question put forthwith pursuant to Standing Order No. 102(9)(European Standing Committees),

ENERGY EFFICIENCY REQUIREMENTS FOR HOT WATER BOILERS

That this House takes note of European Community Document No. 9791/90 and the supplementary Explanatory Memorandum submitted by the Department of Energy on 1st July 1991 relating to energy efficiency requirements for new hot water boilers; and supports the Government's intention of ensuring that the Community's action in this field takes full account of the interests of consumers and others in the United Kingdom.—[Mr. Greg Knight.]

Question agreed to.

Gibraltar

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Greg Knight.]

Mr. David Young: I am vice-chairman of the British Gibraltar, group, but I speak for myself on this occasion, as will the chairman, the hon. Member for Romsey and Waterside (Mr. Colvin), later in the debate.
The 1980 Lisbon agreement and the 1984 Brussels agreement, which followed the opening of the border between Spain and Gibraltar, restored communications and free movement of persons and vehicles across the border. However, the Brussels agreement permits discussion of the sovereignty of Gibraltar between Spain and Britain. That is at odds with the spirit of the preamble to the 1969 constitution, in which the Government make it clear that they will never enter into arrangements under which the people of Gibraltar would pass to the sovereignty of another state against the free and democratic expression of their will. That was based on the 1967 referendum when, of a total electorate of 12,762, 12,132 opted to remain under Britain and only 44 to go under Spanish rule. Subsequent opinion polls have endorsed that finding. What is unique about the Crown colony of Gibraltar is that the people there are, indeed, British citizens.
What is worrying even to this day is the consistent avowed intention of Spain to gain sovereignty over Gibraltar, albeit by peaceful means. No doubt the closure of the frontier by Franco in 1969 was described as being done by peaceful means, although it was highly provocative. Obviously, the Brussels agreement, where it allows for the discussion of sovereignty between the British and Spanish Governments, rubs salt into the raw and all too recent wounds of the people of Gibraltar.
I am concerned not with the past but with the present. What gives me great concern is the apparent harassment that is now taking place on the border. It is because of alleged tobacco smuggling. There is, indeed, tobacco smuggling, as I observe and other observers seem to agree, mainly by unemployed Spanish nationals who, stuffing lots of cigarettes and tobacco into their voluminous clothing, cross and recross the border five or six times a day without, apparently, let or hindrance. However, when it comes to vehicular traffic there is no green channel and every car that passes across that frontier is searched. In practical terms, that means a wait of an hour and a half.
The House can imagine the position of a business man who tries to go from Gibraltar to Spain in the morning—an hour and a half's wait going and a further hour and a half's wait coming back. The waiting time can increase to as much as four hours. I can describe that only as a Franconian approach. It gives me great concern that British citizens are consistently harassed in that way. If it is not the political intention of Spain to disrupt the commerce and economy of Gibraltar, that certainly is the effect. Of course, it is disrupted in other ways, too. Much of the building on Gibraltar is now carried out by Spanish contractors.
Spain has not stopped there. It has made allegations about Gibraltar turning a blind eye to drug trafficking and money laundering. The Foreign Office acknowledges that that is completely untrue. It might be better described in

less parliamentary terms as a bare-faced lie. All those add up to the continuing harassment of Gibraltar by Spain. It is with much sorrow that I say that those issues should have been sorted out before Spain was granted admission to the Common Market. It is difficult to rid one's mind of the conclusion that the acts of Franco appear to be continuing, but this time they are carried out by a democratically elected Government.
As the House is aware, the economy of Gibraltar was entirely dependent on the dockyard and the forces and the money that they brought in. With the closure of the dockyard and the removal of the Army, Gibraltar was struck tremendous economic blows. It intends to become self-sufficient. It is making great commercial strides and it is seeking the establishment of an offshore financial centre. For those attempts to be viable there must be freedom of movement and travel for those operating in Gibraltar as business men.
The harassment of British citizens at the frontier is unhelpful. The failure to re-establish the Gibraltar-Algeciras ferry also hinders economic development. Of greatest concern is the issue of air transport. The Gibraltar Assembly legitimately refuses to ratify the vague, short airport agreement. Because of that vagueness, that agreement appears to give the Spanish the opportunity to interfere in the sovereignty issue over Gibraltar. That legitimate refusal is used to block the admission of Gibraltar to the European Economic Community liberalisation process. Without that, Gibraltarians cannot fly direct to either Spain or any other EEC country.
I cannot better express the concern felt than by quoting the annual report of 1990 from the Chamber of Commerce of Gibraltar, which states:
The contention of the Chamber is that the people of Gibraltar should enjoy the inclusion of Gibraltar's airport in the EEC's air liberalisation process, as of right. Gibraltar's rights to this process were firmly established by the airport's inclusion in the 1983 Inter-Regional Air Services Directive, and were supported by HMG up to July 1987 in Luxembourg when Spain first sought to exclude Gibraltar on the grounds of disputed sovereignty.
What discussions are now taking place between the Foreign Office and the Ministry of Defence about the Royal Air Force in Gibraltar? The airport, which will be the lifeline of Gibraltarian commerce, depends to a large extent on the support and the resourcing of the RAF. During defence questions the Government have expressed their concern to keep the RAF in Gibraltar, but there is great anxiety in Gibraltar that that support will be withdrawn.
What active steps are the Government taking to help Gibraltar to become economically self-sufficient? Have discussions been held on Gibraltar exhibiting at Expo 92? Is not the section of the Brussels agreement that permits bilateral discussion of sovereignty between Brussels and Spain counter-productive as it causes great concern among Gibraltarians? It also undermines their confidence in Britain's intentions, which does not encourage their co-operation.
Britain has repeatedly reiterated its commitment to support the 1969 constitution, but when one sees other documents such as the Brussels agreement, one begins to wonder whether the Government are talking with a forked tongue.
We owe the Gibraltarians a considerable debt for their support in many conflicts, including most recently the Falklands and the Gulf. Are the British citizens in


Gibraltar—that means all Gibraltarians—to be treated as second-class EC citizens? We must support the 1969 constitution not only with words but with actions. We must support Gibraltar in its economic endeavours and work to allow Gibraltarians to be not only politically but economically free.

Mr. Michael Colvin: I congratulate the hon. Member for Bolton, South-East (Mr. Young) on being rather more successful than I have been in the ballot for this Adjournment debate. He knows of my considerable interest in Gibraltar as chairman of the British Gibraltar group, and I thank him for leaving me a couple of minutes to endorse what he has said, especially about frontier delays and air services, and to add three points.
First, Gibraltar still rejects the 1987 airport agreement, arguing—with some justification—that the Government proceeded during the negotiations in the face of known Gibraltarian opposition to what was eventually agreed with Spain. It is felt in Gibraltar that, by providing for special arrangements for Spain under a joint use regime, the agreement represents a de facto infringement of British sovereignty. As a result, there is now an impasse, which is causing considerable frustration on all sides.
It is in the interests of all concerned, especially those living on both sides of the frontier—in Gibraltar and La Linea—that the matter be speedily resolved. As a first step, it is important to clear up the ambiguities that arise from differences in interpretation of the airport agreement by Britain and by Spain. For instance, a similar agreement on an international airport at Basle requires some 2,000 pages to explain precisely what it means. There is no question of a dispute between any of the parties in that case, so it seems illogical that the Gibraltar airport agreement runs to only some three pages. That is obviously part of the reason why such misunderstandings have arisen. Although it accepts that its airport must remain under British authority, Gibraltar would welcome its use by Spanish or, for that matter, any other foreign airlines.
Secondly, Gibraltarians rightly resent their exclusion from the EC air liberalisation packages. There have been two and a third is on its way. It is a negation of Gibraltar's right to benefit unconditionally from its membership of the EEC, which it has by virtue of article 227 of the treaty of Rome. When my right hon. Friend the Member for Southend, West (Mr. Channon) was Secretary of State for Transport, he said that all Community legislation applies to Gibraltar unless, like the common agricultural policy or value added tax, they are specifically exempted.
When my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) was Foreign Secretary, he said that the Government could not contemplate anything that undermined Community law or the legitimate rights of Gibraltar as part of the European Community. Yet Gibraltar is still excluded from the air liberalisation packages despite the fact that it is making great strides in changing to a free market economy rather than being so dependent on the Ministry of Defence for its national income. I believe that the Gibraltar development corporation is taking the case to the European Court of Justice. I shall be interested to hear from my hon. Friend the Minister about the position of her Majesty's Government in relation to that case.
Thirdly, Gibraltar should now participate in the so-called Brussels process. By doing so, it will enhance its sovereignty if sovereignty means having control over its own affairs. If it does not take part, Gibraltar's sovereignty will be diminished. It should be made clear to Spain that, if Gibraltar is expected to participate in the Brussels process—it is high time that it did—the subject of sovereignty must come off the Brussels agenda. A recent opinion poll showed that 60 per cent. of the people in Gibraltar favour participation, but the issue of whether sovereignty should be discussed was not included on the questionnaire.
The hon. Member for Bolton, South-East and I visited Gibraltar with four of our parliamentary colleagues from 2 to 5 June, and I should like to place on the record our appreciation of the warm welcome that we received from everyone in Gibraltar. There was no doubt that they liked seeing British Members of Parliament on the Rock. It enabled us to see Gibraltarians' problems from their view rather than through the rose-tinted spectacles of Westminister and it gave Gibraltarians the opportunity to remind us that they still feel strongly that they wish to remain British.

The Minister of State, Foreign and Commonwealth Office (Mr. Tristan Garel-Jones): I begin by thanking the hon. Member for Bolton, South-East (Mr. Young) and my hon. Friend the Member for Romsey and Waterside (Mr. Colvin), first, for having remained in the House until nearly 4 am to discuss this important subject and, secondly, for giving me the first opportunity that I have had since I became the Minister responsible for Gibraltar to comment in the House on the position in Gibraltar and the policies of the Government towards this dependent territory.
There are two basic pillars on which our relationship rests. The first—to which the hon. Member for Bolton, South-East has referred—is the Gibraltar Constitution Order 1969. That sets out the constitutional provisions for the dependent territory and specifically states in the preamble that
Her Majesty's Government will never enter into arrangements under which the people of Gibraltar would pass under the sovereignty of another state against their freely and democratically expressed wishes".
That undertaking remains, and it means what it says. The Government stand by it and this Minister of all people—and the House will understand why—has no intention of presiding over any hedging on that undertaking.
The second pillar of our relationship rests on the fact that Gibraltar is a democracy—and a rather lively one at that. I shall come to our relations with Spain later on in my remarks, but I would just say that it simply will not do for Spain to refer to Gibraltar as the "last colony in Europe". Our relationship with Gibraltar has lasted nearly 300 years—considerably longer than the lifespan of many of our EC partners. That relationship has developed in a way that has enabled Gibraltar to have its own Government with democratic credentials which no one can call into question.
Since 1969, a number of significant events have taken place. First, the United Kingdom has joined the European Economic Community and, with that accession, Gibraltar became a part of the Community while remaining outside the customs union. Secondly, over the years, Gibraltar's direct economic dependency on the United Kingdom has


diminished to a point where this year the last Overseas Development Administration programme in Gibraltar should run out. Economically, Gibraltar is looking for ways of standing on its own feet—and the people and Government deserve every congratulation on that. As the hon. Member for Bolton, South-East requested, the Gibraltarian people and Government have the full support of Her Majesty's Government in those endeavours.
Thirdly, the changing military and strategic position we face in Europe has meant that Gibraltar is no longer the military garrison that it used to be—a sort of Aldershot in the Mediterranean. The resident battalion has been withdrawn. Most of the dockyard has been transferred to the Gibraltar Government. Thirty years ago the Ministry of Defence owned 60 per cent. of the land area. Today it owns 28 per cent. These are, of course, matters for my right hon. Friend the Secretary of State for Defence, but it is difficult to see this trend being reversed. My hon. Friend the Member for Romsey and Waterside spoke about the airport. I must also refer that matter to my right hon. Friend.
The fourth important change is that Spain has become a member both of the Community and of the NATO alliance. She is a valued partner and a trusted ally of the United Kingdom. I was sorry to hear a Labour Member make wholly unwarranted comparisons between the Spanish Government and the former regime. I hope that on reflection he will feel that such comparisons are unwise.
It has become increasingly clear to me—and I think that I can say that this view is shared by the Chief Minister of Gibraltar and by Gibraltarians themselves—that the future for the Rock lies within the Community, as it does for Britain herself. That future is promising. Gibraltar is the southern gateway to the largest single market in the world and the doorway to one of the most popular and thriving tourist markets anywhere.
As I said earlier, Gibraltar has already made enormous strides in preparing herself for this role for which she is uniquely qualified by her geographic position and by the ingenuity and acumen of her people. But the House will know that Spain has a territorial claim over Gibraltar. The fact that we reject that claim does not make it go away.
I shall try to sum up for the House the nature of the Spanish claim. Spain accepts—acquiesces to might be a more accurate phrase—the terms of the treaty of Utrecht, which ceded the town and castle of Gibraltar to the British Crown in 1713. She does not accept our sovereignty over the isthmus which Spain regards as having been usurped over the years. I make no comment on the Spanish claim other than to say that it does not change our right to administer Gibraltar, that it exists as a claim, and that it will not go away. Equally, we accept that independence for Gibraltar is not an option.
It is against that background that Gibraltar's future in the Community must be built., The fact of Community membership is crucial to Gibraltar's future, but the fact of Spain's membership is crucial, too. Already, as a Community member, Spain plays her part in framing EC

regulations and laws which have effect in Gibraltar. I have to tell the House bluntly—and Gibraltarians are all too well aware of this—that from time to time Spain either pursues or seeks to safeguard her claim and the bilateral negotiating process between Britain and Spain as she sees them from within the Community. Gibraltar's exclusion from the aviation liberalisation packages, to which my hon. Friend referred, bears witness to this, as does Spain's current refusal to agree to the external frontiers convention which has been agreed by all other EC partners.
In my judgment, the current position is unsatisfactory for Gibraltar, for Spain and for the United Kingdom. But I repeat that I am not prepared to contemplate reneging on the undertaking given by this House to the Gibraltar people in 1969; nor am I prepared to ignore the fact of Gibraltarian democracy.
A year ago when I visited Gibraltar I called on the people themselves to initiate a debate about their own future. We will listen to that debate and we will look seriously at any proposals that emerge from it, but we will not seek to impose any ideas upon the people. They have their undertaking in the 1969 constitution order and they have their democracy as a framework within which to discuss their future.
Last May when the Spanish Prime Minister came to the United Kingdom he called for an "effort of imagination" on this subject. I say that this effort must come not just from Gibraltar but from Spain, too. It is not enough to talk about "the last colony". Spain has only to look across the Straits of Gibraltar to appreciate that these things are never quite as simple as they seem. Spain is a big and secure enough democracy to recognise that the democracy of the Gibraltarians merits respect, too.
The House will be well aware of my personal affection for Spain. Not surprisingly, throughout my life, I have come into contact with many British hispanophiles. Nearly all of them carry in their rucksack some ingenious scheme that purports to solve the Gibraltar problem. I believe that it cannot be "solved" in the simple sense of the word, but there is just a chance that it may be dissolved within the EC. There is a sea change taking place in Europe, involving more co-operation, fewer barriers and a greater understanding generally. That tide of new thinking has the capacity to break through the tensions and mistrust that have for so long bedevilled Gibraltar's relationship with Spain. Gibraltar's duty, and Spain's duty too, must be to make sure that these opportunities do not pass them by.
We in Britain cannot, will not, repudiate the undertakings that we have given. That would be a denial of everything we claim to stand for in the world. But we are willing to show all the imagination that may be required of us.
If Gibraltarian democracy is to mean anything—I believe that it does—progress depends on the freely and democratically expressed wishes of the Gibraltarians. If Gibraltar makes that effort of imagination, I hope that Spain will do so, too.

Question put and agreed to.

Adjourned accordingly at one minute past Four o'clock.